Analyst picks for: 2009/03/11
Written by the DailyFX Research Team
The Japanese yen has exhibited some of the most volitile price action over the past month. However, the bearish momentum that produced incredible rallies for the dollar, euro, pound and swiss franc have stalled. And, while congestion has prevented an immediate reversal; the market is charged with potential for a move in either direction. Read the DailyFX Analysts' picks to see which direction the yen crosses will take and which is the best pair to follow.
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Chief Strategist Antonio Sousa My picks: Buy USD/JPY @ 98 limit Expertise: Global Macro Average Time Frame of Trades: 1 week
Yesterday, a sudden change in investors sentiment towards more risk taking combined with news that Citigroup had its best quarter since 2007, led to a substantial rally on stocks and high yielding, high risk commodity currencies. However, once again, I think this rally is not sustainable and those gains will be short-lived. In fact, the world economy is likely to continue to face substantial challenges in 2009 including further job losses and a rapid deleveraging in the financial sector. Eventually, this will trigger a new wave of flight-to-quality in the form of purchase of U.S. Treasuries and continue to help safe-haven currencies like the U.S. dollar.
Senior Currency Strategist Jamie Saettele My picks: nothing, waiting for clarity in USDJPY Expertise: Technical Average Time Frame of Trades:
I still do not see any clear trade in the USDJPY at current levels. If the USDJPY breaks higher from a triangle as I think it might, then there will be a shorting opportunity near 101, which is the November 4 high / 61.8% of the decline from 110.71. Short term structure has not confirmed that a top is in place. The triangle is not mature enough at this point to position for the terminal thrust. A day or two more of range within the triangle is likely before a terminal thrust upward. The risk to going long near channel support (close to 97) against 96.55 is that a flat is also possible, which would result in a spike below 96.55 and quick reversal. If I see evidence of a mature triangle, then I will mention so with an alert at DailyFX.
Currency Strategist John Kicklighter My picks: Pending NZDJPY Breakout (Long Bias) Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week
The Japanese yen has stalled in its plummet against the US dollar and British pound, curbing the breakout potential for those crosses that have not marked their own breakouts. This is an important relationship to note. If the more liquid and less risk-sensitive currency pairs are loosing momentum, then the less active and more risk attuned may have seen the potential for bullish breakouts curtailed before they even began. As such, my pending AUDJPY breakout setup has been deferred yet again. Nonetheless, I will keep my breakout orders for AUDJPY in place. The technical wedge that has developed with the more mature falling wedge since October (and backed by the general trend of more than a year's worth of price action) and rising trendline from the February second low is now a mere 150 points wide and closing quickly. I am open to a break on both sides of the market; but perhaps I can improve my potential for a successful trade (or leverage last week's setup) by trading NZDJPY. The kiwi-based pair is developing an ascending triangle and has a greater impetus for near-term breakout thanks to the RBNZ rate decision due this afternoon. The New Zealand currency is extremely sensitive to its interest rates as it is predominantly a yield currency. A larger than expected cut could send NZDJPY plunging. However, no cut or a small change could easily catch the market off gaurd and finally catalyze the bullish break that the market has been flirting with since early February.
Setting the scene, we first have to take stock of the development in price action. The ascending wedge formation mentioned above is the best situation for establishing pressure (as the formation closes towards its terminal point) and offering clear levels for entry. The pressure comes from the rising trend from the Feb. 2nd low. Resistance is measured in the range highs beginning Jan. 14th and stabalized by the 50 percent Fib of the Jan. 6th to Feb. 2nd bear wave at 50.30. A higher time frame close (240 minute, 480 minute, daily) above this resistance should it come after a reasonable outcome for today's event risk would be good confirmation for a long position. The objective after such a move may bereasonable set around the last swing high above 56 and a stop can be set below the current wedge. Alternatively, a short-side break should be considered a close below 48.50/75 on the same time frame. The potential for such a move will be more limited which makes for a less appealing trade through risk/reward considering a stop set above the range high. Trading this pair in conjuction with AUDJPY would add an additional dimension to this setup. Opposing positions could offer an anchor to the New Zealand event risk or we could double up for leverage that would help to absorb any momentum that developes. We will keep with our pending limit orders though - no market entry.
Currency Strategist Terri Belkas My picks: Long EUR/JPY on a Break Above 126.00 Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 1 Day - 1 Week
On March 5 I thought it was a good point to exit long EUR/JPY positions as the pair's drop from resistance and high levels of risk aversion in the financial markets made me a little worried that most of the JPY crosses would pull back sharply. However, the pair has since climbed fairly steadily and as a result, I am looking to buy EUR/JPY upon a break above 126.00 to target the November and December highs near 130.00. Stops should be placed according to preferred risk/reward ratios.
Currency Analyst David Rodriguez My picks: Flat the JPY for now Expertise: System Trading Average Time Frame of Trades: 2-10 weeks
I've been frustratingly on the sidelines for much of recent price action, but it's actually saved me a good deal of money given that I've been a longer-term USD/JPY bear. Last week I began pointing out increasingly one-sided sentiment in USD/JPY risk reversals that pointed to gains, but I didn't act on my own insights. Regardless, that trade would have gone against my longer-term bias and I don't necessarily regret keeping out of it. Through the near term, I believe we're at increased risk for a USD/JPY pullback, but the difficulty in setting a credible stop-loss level makes it a somewhat dangerous position. I will monitor USD/JPY price action and update my picks accordingly.
Currency Analyst Ilya Spivak My picks: GBPUSD (pending) Expertise: Global Macro, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months
Last week, risk/reward considerations kept me on the sidelines as GBPUSD bounced lower from falling trend line support. The pair has now put in a Star candlestick above support at the previous swing bottom (1.3731), hinting at the possibility of a rebound. Alternatively, a daily close below this juncture could open the door for further downside. I will remain flat for the moment and watch for the close on the current candle for confirmation.
For complete analysis of all the major currency pairs, please see my latest weekly outlook report.
Currency Analyst John Rivera My picks:Long USD/JPY Pending Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 2-4 Days
The USD/JPY rally has been capped by the 200-Day SMA which made may long call last week unprofitable. Although, I have been long the pair for the past few weeks, until I see a break above that technical level which currently stands at 99.99, I will refrain from adding any new positions and look to take profits. Conversely, if I see a break below 97.00 I would look to take a short position with the possibility of a retrace back down to the 100-Day SMA at 93.40
Currency Analyst David Song My picks: Range Trade NZD/JPY - Watching For Breakout Expertise: Fundamentals and Technicals Average Time Frame of Trades: 2 - 10 Days
Expectations for a 50bp rate cut by the Reserve Bank of New Zealand is likely to weigh on the exchange rate over the remainder of the session, and I expect the pair to fall back towards the lower-end of its range as the $128B economy faces a deepening recession. As trade conditions deteriorate at a record pace, RBNZ Governor Alan Bollard is likely to hold a dour outlook for growth and inflation, which should lead the pair lower over the week. As a result, I expect the pair to work its way below 48.80-90 (38.2% Fib), and will hold my target at 46.70-80 (21.4% Fib) for the time being.
Currency Analyst Joel S. Kruger My picks: Short USD/JPY @98.25 for 96.55 Objective, Stop @99.25 Expertise: Technical Analysis Average Time Frame of Trades: 1-3 Days
The pair has been trading with a heavier tone since peaking by 99.70 last Thursday and could be in the process of carving out an hourly head & shoulders top that would ultimately project setbacks to the previous major neckline resistance now turned support at 94.60 (5Jan high). The neckline for the hourly -&s top comes in by 96.55 and we would expect this level to be retested at a minimum over the coming sessions. The 10-Day SMA comes in by 98.30 and the moving average has also managed to prop setbacks for much of the rally out from the 87.15 trend lows in late January. However, this trend looks like it could be on the verge of being compromised and we have sold on a break back below todays previosu low at 98.26 in anticipation of an initial retest of 96.55. Stops to be trailed to cost on a break back below 97.90. If 97.90 not broken, position to be closed out at NY close (5pm EST) on Wednesday.
Fundamental Catalyst We are approaching year end for Japan and quite often leading into the end of the month of March there is significant flow related demand for the Japanese currency on a major repatriation of Yen. This could start to weigh on the pair, particularly at current levels with the market falling just shy of 100.00 recently and looking overdone on a technical basis. Additionally, while the correlations with risk aversion havent been as compelling of late, they still are worth paying attention to, especially after a day like Tuesday where equities put in big gains. In the current market environment, any follow through from big up-days in stocks has been frequently met with direct selling, and we see will look for the same pattern today, expecting that flat to lower equities will once again generate some Yen related buying on carry liquidation.
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