Last week, the braoder markets were showing a measured improvement that translated into a slow retracement of the yen’s tumble beginning in early January. However, this week, the drift has started to build momentum as fundamental concerns temper and technical levels are breached. There is little doubt that this paritcular currency is highly sensitive to changes in investor sentiment; and this is where my hesitancy with jumping into the recenty rally in the yen crosses comes from. Risk appetite itself controls what is fundamentally encouraging or threatening; and the balance between greed and fear can help weather otherwise significant economic trends. However, I think the exceess premium that built up through 2009 has not been fully worked off given the tempered pace of growth ahead of the world and the financial troubles that are developing. This week, I am still focused in on the Greek bailout. While it may seem that the market has moved on from the troubles with this nation; the deep-seated fundamental troubles the Euro Zone faces with this and other members. Add to that the potential asset bubble in China, the onset of another Lost Decade in Japan, a ballooning budget shortfall in the US and sovereign credit risk everywhere; and there is little reason to be so optimistic on returns.
Setting such a long-term fundamental outlook to much shorter time-frame trading; means I have a general bias. However, corrections in larger trends do happen; and the market can ignore fundamental truths for a considerable time. That being the case, I decided to cut my EURJPY position when its edged above 124.25. Having entered at 127, I was able to book a consideable profit; but it was no where near what it could have been when the pair dipped below 121. If this pair moves back up to 127 and shows it will hold, I may jump back in. Another setup that I have liked for a while, USDJPY closed above the ceiling on its descending trend channel and encouraged me to build up a long position. I have already taken half profit at 91 as this level is another notable level of resistance. Above that 92.25 marks the 200-day SMA and a longer-term trend. Nonetheless I will build a position with each push of the aforementioned resistance levels; and I’ll also add in a pullback to 88/86 for a significant holding period.
Visit DailyFX
