Momentum In The Yen Crosses Key To A CADJPY Range Setup

Daily Forex Technicals | Written by DailyFX | Jan 21 09 01:53 GMT |

Why Would CADJPY Hold a Range? Levels to Watch: Range Top: 75.50 (Trend, Pivot, Fib) Range Bottom: 87.15 (Multi-Year Range Low) From a fundamental perspective, there is considerable risk in approaching a CADJPY congestion setup. While this pair is not as highly correlated to risk trends as its pound or Australian dollar counterparts, it nonetheless retains its sensitivity to the yen's status as primary safe haven for the currency market. What's more, a significant amount of scheduled event risk can stir up volatility and redirect longer-term growth forecasts. The risk of a breakout from the highly visible CADJPY range is tangible. However, the technical level of support is significant in itself. The 70.60/95 zone has been a range low for the past three months and has similarly held up a previous base low some years ago. Tails are numerous in this area; so daily closes hold greater consequence. Suggested Strategy Long: Half-sized entry orders will be set at 71.45, which will actually require a bullish turn. Stop: An initial stop at 70.05 is well below past months' intraday tails. To secure profit, move the stop on the second lot to breakeven when the first target hits. Target: The first objective equals risk (140) at 72.85. The second target will be 74.25. Trading Tip - Many of the yen crosses have already made the move for significant bearish breakouts, but a few notables have held back. Should these liquid pairs hold back the tides, CADJPY may be set for a sharp rebound on a major range bottom. Our suggested strategy works with this premise; but accounts for this being a relatively risk proposition. In essence a long position in any yen cross inherently find correlation to general risk trends - currently a volatile market dynamic. Therefore, our setup looks to use half-sized entry orders to reduce risk and allow for a wider stop. What's more, our entry is set above current spot, which would require a rebound from this pair to take one more step towards assuring a bullish reversal that holds with support. Should spot drop below 69.50 before we are in a position, we will cancel any open orders as the market environment will have shifted. Furthermore, we will cut lingering positions by Wednesday's close as this is an active setup and should trigger well within the next 12-18 hours. It is also important to note that this position is a partial hedge to the USDJPY exposure that we have established with yesterday's setup - an additional benefit towards lowering risk. Event Risk Canada And Japan Canada - Uncertainty hangs over the Canadian dollar's future. Can the nation's economy and financial markets indeed weather the global crisis better than the United States; or is this wishful think that will consistently be discounted through loonie depreciation? These concerns will be partially answered by through developments in business activity going forward - an unpredictable market dynamic. However, there will also be scheduled event risk that could have an immediate impact on volatility as well as a lasting influence on the fundamental outlook for the economy. On deck for the end of the week, we have two key market movers: retail sales and the consumer price index series. Through the most recent growth figures, Canada seems to have actually seen a boost in growth through the second half of 2008, but this is unlikely to last through fourth quarter data. With November's retail sales report, we will receive an updated read on consumer spending, a vital component of overall growth going forward. CPI will look to confirm the BoC's forecasts for inflation to turn negative for two quarters of 2009: but as a confirmation, its impact on the currency will be relatively limited. Japan - Your typical economic releases have never had much of an impact on the Japanese yen as the currency has instead found a greater sense of purpose as a measure for risk appetite. This will almost certainly remain the case over the coming week. However, preparing for shifts in risk is very difficult as such events are rarely foreseeable. On the other hand, there are a few issues developing now that may evolve into something more pressing over time - including the financial difficulties of a few major banks, details on where US officials will spend the second half of the TARP funds and signs that the UK government has to expand it bailout efforts significantly to stabilize it's economy. Looking at the traditional economic docket, the Bank of Japan should be monitored just in case. With a specific release time, the central bank will have to layout any efforts beyond rate shifts that they plan to take relatively soon. 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