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Yen Crosses and EUR/USD Make a Move

John Kicklighter

Just as with last week (when I had a number trades - EURUSD, EURJPY and GBPJPY - hit stops due to a weakly supported 'risk on' drive), we find the FX market turning over without a unifying catalyst. Normally, we look for a correlated move towards or away from risk assets as a sign that risk trends themselves are in play. Investor sentiment is a systemic consideration and therefore can spark and sustain serious trend development. Naturally, we we see the evidence of a risk move developing, it is worth taking note.

Over the past 24 hours, we have seen EURUSD and the carry-heavy yen crosses specifically take to a quick move lower. Considering that I have a bigger-picture bias towards risk aversion, I can be more easily wooed to believe risk is responsible. However, just as I was skeptical of the 'risk on' move that seemed to develop late last week, I'm questioning the 'risk off' move we see now. There are a number of concerns we can point to, but the biggest put off is that we aren't seeing a common exit from risk from FX, equities, commodities and yeilds.

This skepticism doesn't mean I'm not participating however. Individual currency or pair moves are possible with specific catalysts even if risk trends aren't engaged. EURUSD for example has retreated after a three-day run - a run that continued after most other major benchmarks stalled. I took a short EURUSD position from 1.3325 (stop:1.3385) looking for a correction rather than major trend shift.

The yen crosses have also drawn my attention again. Last week, I was trading on the premise of a natural correction and technical break showing progress. It was sound, but disrupted by the announcement of more stimulus. The same, natural pull has pulled the yen crosses lower again this week. For exposure, I have a short GBPJPY short from 143.00 (stop trailed to breakeven) - but there are plenty of other options. I generaly target a first target equal to risk, so I took the first half off at 141.75 (+125).

I like the trendline breaks in USDJPY and EURJPY as well, but I don't want to leverage up on a signal trade 'theme'. As for the high yield yen pairs (AUDJPY, NZDJPY), I have avoided them due to the high negative roll.

Elsewhere, I had also taken a EURNZD short from 1.5930 (stop trailed to breakeven) initially using it as a 'risk on' hedge - the kiwi would benefit more a positive risk move than the euro. However, the euro's individual weakness helped it hit its first target (first half taken for +130) alongside other supposedly risk-negative moves.

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