The Dollar Forces a Big Ticket USDJPY Breakout
The majors were given a significant push this morning when EURUSD took out its 1.3450 range low. As the most liquid pair in the currency market and given its function as a stable rudder for risk appetite trends, this tumble would in itself translate into a broad rally for the benchmark currency. For a fundamental driver, we were delivered the news that Portugal's credit rating was downgraded by Fitch. Psychologically, this raises awareness of the breadth of the EU's struggle to stabilize regional finances. This may seem an isolated event to the euro; but the fragility of the global markets can easily amplify the threat and turn it into a global one. Therefore, the breakouts we have seen with USDJPY and other dollar majors (not to mention other crosses) may still struggle with follow through. If risk appetite trends do not turn over and support the dollar's rally, a pullback could be in store.
For positions, I am already short AUDUSD; but I am still waiting for a clear pivot low at 0.91 to allow for greater follow through. Another position that triggered overnight was a short EURUSD setup that was set at the bottom of the range. I will keep a stop close just in case. Finally, I am looking at USDJPY's break from its long-term descending wedge formation. I didn't get in with the initial break; but I will set an entry long between 91 and 91.40 on the high potential of a retracement.
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