High Risk USDJPY Range Counters Possible Dollar Reversal

Daily Forex Technicals | Written by DailyFX | Dec 12 08 02:30 GMT |

Why Would USDJPY Hold a Range? Levels to Watch: Range Top: 94.50 (Fib, Pivot, SMA, Trend) Range Bottom: 91.00 (Multi-Decade Low) In the past 12 hours the US dollar has marked a bearish break against many of its most liquid counterparts. However, this does not seem to be a move related to general risk sentiment as other markets have been otherwise stable. Therefore, there is a significant risk USDJPY can break as well. However, the yen and dollar are on very event fundamental ground; and the BoJ has an active history of intervention at these levels Like the fundamental turn in the dollar, the technical foundation of a USDJPY is dangerous. While 91 is a clear point of contention, it holds little solid relevance beyond it being a spike low. Sentiment is the key to this support holding up, especially considering the dominant trend is clearly bearish. Suggested Strategy Short: Half-sized entry orders will be set at 91.25 - just above today's low. Stop: An initial stop at 90.50 is tight, but necessary given the profile of risk in the trend. To secure profit, move the stop on the second lot to breakeven when the first target hits. Target: The first objective equals risk (75) at 92.00. The second target will be 92.75. Trading Tip - USDJPY is presenting a particularly dangerous, but also a potentially lucrative, range set up. With the US dollar breaking across its major counterparts, there is the chance that we could see a major trend change in the market. However, without a shift in risk sentiment and considering we are now heading into the low liquidity holiday season, it will be difficult for a true trend change to find a foot hold. Looking out across the market today, most of the majors marked significant breakouts from technical wedges - led by EURUSD. So far, the yen cross has been held back just above the recent swing low just below 91. This is a critical level for sentiment for a pair that is comprised of two fundamentally similar currencies. The US and Japan are the world's largest economies, each is considered a safe haven for capital, they have historically low benchmark lending rates, they are heavily dependent on consumer spending and exports, recessions for both are expected to balloon going forward and their markets are experiencing crises. However, these fundamental arguments may mean little when volatility is blended into price action. Our strategy looks to minimize risk as support is modest and the set up would contradict the dominant trend. For insurance, we will cancel any open orders before the weekend and take positions half the normal size. Event Risk US And Japan US - As risk trends continue to settle, global rates head towards zero and the world-wide recession unfolds, the dollar's place in the currency market will come further into focus. With the dollar falling to a seven-week low today, the long-term fundamental outlook for the dollar can be called into question. The need for a safe haven currency is still apparent; but choppy price action should begin to soothe fears for a market that has a relatively short memory. However, with lender and investor sentiment holding the financial market at the edge of another crisis, such improvements will be modest. Over the short-term however, there is a substantial amount of data that can influence dollar price action. During our entry period, there will be a number of to tier indicators crossing the wires. Consumer confidence and spending will gauge the progress of the recession while the PPI reading may point to the onset of deflation. After the weekend, the next Fed rate decision (perhaps the last in the current cycle) may leave the policy authority out of options. Japan - There are a few notable pieces of event risk on the Japanese docket; but there is little potential for these indicators to generate meaningful volatility over the short-term. Instead, the yen will find its guidance from general risk trends as usual. However, the back and forth in sentiment has settled substantially over recent weeks - though the underlying problems in the markets and global economy are perhaps worse than they were a few months ago. Looking for volatility in the Asian sessions, the Tankan manufacturing index for the fourth quarter could alter growth forecasts; while the BoJ rate decision may come with commentary that warns of ZIRP. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. 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