By Jake Fillipp
You Don't Need to Get Chopped Up
With trading desks around the world now fully staffed after the holidays, trading has officially begun for the New Year. Many currency pairs have kicked of 2008 with fairly narrow ranges. Narrow range bound markets tend to create a difficult environment for many traders. However, this does not have to be the case. The EUR/JPY has provided some textbook trading opportunities the past couple sessions. Since Wednesday of last week, the pair has traded in a 200 point consolidation range, with 161.80 limiting the upside, and 159.80 providing support. While some traders may decide to stay away from such narrow price action and decide to wait for a breakout, astute short term traders can profit tremendously from such conditions.
Determining the Trend
With the short and intermediate term trend on the hourly EUR/JPY chart being neutral, we are cleared to take buy and sell signals on the shorter term charts at previous levels of support and resistance. This afternoon we had a perfect buy signal on this pair. With stocks trading heavy in the early New York afternoon, this pair was quickly approaching its support level and previous dayâ€™s low of 160.00. A couple of doji candles on the 5-minute chart right above yesterday's low at around 2 P.M. EST followed by a 12 period slow stochastic cross should be what initially gets your attention. Then we have a 5-open, 5-close simple moving average cross around 2:30 P.M. EST. Ten minutes later the MACD histogram starts to go into positive territory, giving you a powerful combination of signals to go long above yesterday's low in the EUR/JPY right around 160.30. With these signals being duplicated on a 15-minute chart followed by a trendline break right after 3 P.M. EST, you have all the ingredients for a textbook trade in what is a sideways market that most traders decide to stay away from. As of 5 P.M. EST, this pair was trading around 161.30, giving you a quick 100 pips. (For more information on the trading methodology we follow and teach to clients, please shoot me an e-mail or give me a call.)
Range About to Break?
With stocks rallying hard into the New York close, and this signature carry trade pair closing near the highs of its now week-long consolidation range, we could see a break-out very soon. Traders should watch Asian Equities and Stock Index Futures overnight and tomorrow for clues as to if this pair can get legs above the recent highs of 161.80. With Japanese retail traders and the fabled Mrs. Watanabe's back at their trade stations kicking off the New Year, we could see some heavy Yen selling as the week progresses if stocks can extend today's gains.
Brewer Futures Group, LLC.
Charts Courtesy of FX AccuChart