Outlook Split On Japanese Yen As Analysts Consider The Dollar's Influence The carry trade has turned to consolidation over the past two weeks, but the congestion in many yen crosses still falls within broader trends. With technicals providing strong opportunities and fundamental event risk picking up, the DailyFX Analysts are preparing for the next big move. See what pair our Analysts are following below:
My picks: Sell Short EUR/JPY Expertise: Fundamentals, Volatility and Sentiment. Average Time Frame of Trades: 1 day to 3 months
The recommendation I have for today’s very volatile market is to go short EUR/JPY for 300 pips in profit potential with a stop in a daily close above 163. Recent economic data points towards a weakening of real GDP growth in the euro zone economy and a more accommodative monetary policy could be needed to prevent the region from falling into a recession. On the other hand, the Bank of Japan is likely to keep interest rates on hold, according to overnight index swaps. Lower interest rate differentials could make the euro less attractive to Japanese investors and the lower level of demand for assets denominated in euros could accelerate the losses in the EUR/JPY
My picks: Short CHFJPY Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week
Calling direction on the Japanese yen has become relatively difficult as lingering fears about a collapse in the US banking system is raising concerns and volatility in the carry trade. However, on the other hand, activity from many of the major crosses has been jostled by fundamentals from the counter currency in their pairs as well as major technical formation. It seems that traders are cautious and waiting for a distinct fundamental shift to define direction. However, there are seems to be an overall trend for some of the pairs and appealing technicals to go by on a few of them. To limit risk and take advantage of a particularly strong set of technicals, I'm watching CHFJPY. The pair is in a down trend on the medium term, and the short term chart shows another very precise falling trendline just above 100. I would look to go with the trend with shorts that takes entry close to the falling trendline. Stops can be placed relatively close as a break will alter the outlook for price action. A first target should equal the risk taken on the first lot and the second objective can be more aggressive - though it can be cautious (within the 99.00 double bottom) or aggressive (looking for a break to new multi-month lows). Volatility should be more or less constrained as neither Swiss nor Japanese data is very market moving; and this pair offers some shelter from carry trade fluctuations.
My picks: Long USDJPY Expertise: Macro Fundamentals, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months
The rally from March lows below 96.00 has entered consolidation between the June top at 108.57 and the 138.2% Fibonacci extension of the 06/16-07/16 down leg. We have noticed that price action appears to be unfolding in a Rising Wedge formation. As we mentioned earlier this week, “[a] Rising Wedge formation is typically indicative of a reversal and is confirmed by negative divergence between the direction of price action and an oscillator. We can see that USDJPY was making new highs in August as the Slow Stochastic oscillator as pointing down, suggesting bullish momentum is running dry.” This warrants caution in undertaking a long position, though the overall direction of the US dollar favors appreciation as suggested by the bullish breakout in the DXY Dollar Index. Strategy: Long USDJPY on a daily close above 110.45, aiming at 111.59, the 161.8% Fib level.
My picks: Long USDJPY Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 4-8 Days
The current bout of risk aversion is presenting a good entry point if you are bullish the USDJPY. The banking concerns are leading to Yen strength, but I beleive that a resolution to the GSE situation is around the corner and that will significantly increase risk appetite leading to the pair trading higher. Target 112.16 the yearly high.