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Most Yen Crosses are Still a Product of Risk Trends, Most...

Most Yen Crosses are Still a Product of Risk Trends, Most...

2010-03-10 14:47:00
John Kicklighter, Chief Currency Strategist

The Japanese yen is still hopelessly tied to underlying trends in risk appetite. This has the potential to be a prominent fundamental driver for the single currency; but recently, stalled sentiment trends have led the yen crosses to turn to frustrating congestion. This is a reality that we have to adjust to. As such, positions that I am looking for are either short or long-term (as opposed to medium-term swings that require a bigger objective) and staged technical patterns that could capitalize on a meaningful change in market conditions. Currently, there is no immediate impetus for just such a breakout; though there is plenty of fuel to burn once that iniital hurddle is cleared. Among my top cocnerns are the extensive implications of Greece's financaial troubles, downticks in sovereign credit ratings around the globe, the steady withdrawal of stimulus and Chinese strained efforts to cool its blatant asset bubble. However, as always, risk is a concept that the market will determine.

For positions, my only active yen setup remains the USDJPY long. This is established for the long-term; so my position size is limited and my tolerance for inter-trend retracements is high. Since setting this position up, I have trailed my stop to break even. My reason for this is the potential opportunity to realize a better price at 87 or 88. I would also be encouraged to build above 92. My bullishness for this pair is sourced in the fact that the exchange rate is just above a 14 year low and fundamentals fully support the dollar over the yen when it comes to economic recovery, safe haven qualities and interest rate potential. Looking for new opportunities; there seems some potential in pairs like EURJPY and CHFJPY, but market conditions may render these potenial pairs impotent. On the other hand, NZDJPY is more attractive from a technical perspective. A pivot, range high and Fib confluence at 64.50 sets a good boundary on congestion even if the market remains choppy. Taking into account the potential for a bounce in risk appetite and an upside break, I will set a reduced size short entry order at 64.30 with a stop at 65 and a first target of 63.30 and second of 61.50.

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