System fund stops have been triggered in Usd/Jpy this morning, as massive right hand fix related demand for the pair has catapulted the rate to fresh intraday highs, now threatening a challenge of the critical psychological barriers at 100.00. The broken correlation between the Yen and risk aversion is once again impressive with the slew of weaker data out of the US, including weaker durable goods, initial jobless claims and new home sales, triggering some more broad based flight to safety USD buying, even against the Yen. In other news, President Obama has been on the wires with an overview of his budget priorities, while Ex-Fed Chair Volcker is in front of congress saying that the markets are facing unprecedented risks and complexities. ECB Trichet is in Dublin offering a gloomy outlook for the local economy, while UK Chancellor Darling has said that RBS will still remain a publicly listed company. US equities are much stronger on the day, and on the commodity front, oil has been surging, up well over 5.00%. Gold however has not been benefiting from the equity rally and trades down nearly 2.00%.
Normally, we use the Cross Country report to analyze selected cross rates, but for today, we will focus on another counter-trend setup that could develop in Dollar/Yen this afternoon.
Usd/Jpy - The market has been rallying in unrelenting fashion over the past several days since breaking above key double bottom neckline resistance at 94.60 on Monday. While the double bottom trigger ultimately projects gains back above 100.00 to the 104.00 measured move area, we continue to look for opportunities to fade the pair intraday with the daily studies so heavily overextended. The daily RSI had finally broken above 70 for the first time since June 2007 this week, and the break does warn of the need for the market to pullback a bit to allow for a healthy correction. Ideally, we would like to see a pullback to retest the previous resistance turned support at 94.60 before a renewed upside extension back above 100.00 and towards 104.00. The 50% fib retracement off of the major 110.70-97.15 move comes in at 98.90 and we will look to sell rallies to the latter today and only today. Strategy: SELL@ 98.90 FOR A 95.00 OBJECTIVE, STOP @100.10. Stops to be trailed to cost on a break back below 98.20. Recommendation to be removed if not triggered by NY close (5pm EST).
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