A Bailout Could Spell Volatility And Breakouts For The Japanese Yen
The US Congress has agreed to another vote on the US financial market bailout plan today - the perfect driver for the carry-sensitive Japanese yen pairs. How does such event risk fit into the technicals; and what pairs are the DailyFX Analysts watching? Read on to find out:
Chief Strategist - Antonio Sousa
My picks: Remain Long AUD/JPY
Expertise: Fundamental and Sentiment.
Average Time Frame of Trades: 1 day to 3 months
The Japanese yen has been the main beneficiary of the lack of confidence that characterizes the current global financial system. Yet, I have been building a long position in the AUD/JPY and I expect the Australian dollar to rebound against the Japanese yen on speculation the new plan proposed to the U.S. congress by the U.S. Treasury Secretary Henry Paulson could lead to a world wide recovery in the appetite for risky assets like stocks and higher yielding currencies. Japan, which has one of the lowest interest rates in the world, has been the place investors use to borrow money for more than a decade and I don’t expect that to change any time soon, particularly with the word “deflation” still fresh in the minds of Japanese monetary policy officials. Nonetheless, the current market volatility makes it very difficult to predict what may happen next but there is growing speculation that any government bailout plan, whether it gets approved or not, will fail to restore investor’s confidence in the global financial system.
Sentiment Analysis
The ratio of long to short positions in the USDJPY stands at 1.23 as nearly 55% of traders are long, according to the FXCM SSI which measures the positioning of thousands of retail traders. Last week, the ratio was at 1.19 as 54% of open positions were long. Short positions are down by 4.0% since last week and retail traders have been covering their USDJPY short trades.
Senior Currency Strategist - Jamie Saettele
My picks: USDJPY short (from 105.50), against 107, target below 103.50
Expertise: Technical
Average Time Frame of Trades: 1 month
I accidentally wrote about the USDJPY yesterday in these pages. So, more or less repeating from yesterday; "The USDJPY is still in a range. I favor the downside as long as price is below the trendline from the 110.71 top. However, failure to continue lower through 103.50 does not instill confidence in the bearish bias."
Currency Strategist - John Kicklighter
My picks: Pending USDJPY
Expertise: Combining Money Management with Fundamental and Technical Analysis
Average Time Frame of Trades: 3 days - 1 week
With the US dollar rallying right up to a major resistance point in some of its most liquid pairs, I'm looking once again to the USDJPY position that was my pick on Monday. What's more, though I was not looking at it before, playing the months' old descending wedge would have produced two good range trades in so many days. With spot once again just below resistance, this can be a reduced-sized opportunity while waiting for the bigger breakout. Technically, resistance is called up in the descending trendline from the August swing high and the steady descent in highs since. A hard figure to watch for a breakout would be 1.07. On the other side, multiple tests of 1.04 has put in a very deliberate floor under the market with other technical levels around to confirm its importance.
Fundamentally, the pace of this pair is very much dependent on what happens with the bailout plan in the US and any more bank implosions that happen until the legislation is approved. Of course, as this has a very direct impact on the US dollar and the carry trade, there has been an unusual push and pull during these market uncertainties (hence the congestion). In the short-term, a reduced size position looking to take advantage of the mature range (106.50 - 103.50 at the extremes) could be good for short-term moves. However, stops on any range activity should be very tight and orders should be ready in the event of a breakout. A break (close if I decide to go for caution) above 107 could drive a move to 110.50. For the downside a move through 103.50 could target 99 or even 95.75 over the long run.
Currency Strategist - Terri Belkas
My picks: Short USD/JPY
Expertise: Fundamentals Combined With Technicals
Average Time Frame of Trades: 1 - 3 Days
The false optimism that propelled equity markets higher on Tuesday also led carry trades higher as well, but I think we'll see a reversal of that today. The US Senate is expected to vote on the Treasury's $700 billion bailout bill tonight, but without the assurance of a full approval today, lingering risk aversion should take a toll on the markets today. As a result, I like USD/JPY to the short-side, with a near-term target of 105.38 (the 38.2% fib of 103.49-106.54) though I think we could easily see a drop to the psychologically important 105.00 level.
Currency Analyst - David Rodriguez
My picks: Sell EURJPY Rallies
Expertise: System Trading
Average Time Frame of Trades: 2-10 weeks
I've been calling for Japanese Yen rallies for quite some time now. Unfortunately, I called for the JPY to appreciate against the US dollar--the only currency against which it has not gained. I still think the JPY has a good deal of gas left in the tank, so I'm in favor of selling EURJPY rallies. I will base my trades according to trading signals on DailyFX+.
Currency Analyst - John Rivera
My picks: Short USDJPY
Expertise: Fundamnetals Combined With Technicals
Average Time Frame of Trades: 4-8 Days
I am looking at going short the USDJPY as I expect the upcoming NFP report to be dismal and bring home the point that a rescue plan from the government only gets us back to a normal recessionary environment and takes us from the brink of a catastrophe. I will most likely wait for the fallout from the Senate vote and see if I get a better entry point.
Currency Analyst - David Song
My picks: Short AUD/JPY
Expertise: Fundamentals Combined with Technicals
Average Time Frame of Trades: 2 - 10 Days
After bouncing around 88.50 last week, the AUDJPY has come under heavy selling pressures to break below 85.00, and I anticipate the underlying downtrend to lead the pair lower over the week. For the past two days, the aussie-yen has made an attempt to move back above 85.00, but the failure to do so has led me to hold a bearish outlook in the near-term. The pair has currently broken below 84.00, and I anticipate the pair to test the 9/16 low of 81.41 for support on its way to the downside.
DailyFX
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