An opportunity to buy into pullbacks on yen pairs (AUD/JPY, NZD/JPY, CAD/JPY, USD/JPY) is still a tempting proposition despite the doubts many traders have about what the BOJ may/can/will do next to keep the pressure on the yen.
If this morning’s yen volatility didn’t already grab your attention (on the unusual Kuroda timeline for recovery clarity come mid-2013) perhaps the the triple digit Dow rally has – and then means more “risk on” pressure for the yen. But there is that little matter of tomorrow NFP to contend with…
The issue – and traders MUST consider multiple scenarios before the reality hits – is this: NFP will set the tone for the first part of Summer in terms of equities and the U.S. Dollar. In many ways the U.S. Dollar IS the easier play because it’s a more straight forward thought process. If the jobs number(s) beats then QE begins to look like a dinosaur going extinct by year’s end. I say “numbers” because there is the March revision to consider! And traders know the revisions are as much part of the overall game of NFP as the headline numbers.
The USD/JPY then would be a perfect opportunity to buy dollars and sell yen on a strong headline number (consider the revision too because a flat headline and a upward revision would offer a risk ON opportunity as well). But what IF the number or both numbers are disappointing? The USD/JPY is going to fire on both cylinders and head lower on dollar weakness and yen strength.
Another two scenarios would then be to play the yen against currencies that have some strength of their own and this would include the NZD/JPY and CAD/JPY. The RBNZ is likely to “sit on their hands” (shout-out to Livermore there) despite an exchange rate that is higher than they would like, and the BOC remains the most hawkish of the G7. Thus a yen weakness play against either looks solid but if the numbers miss, yes, both these comm-dolls could weaken but perhaps not as badly as the greenback. But that bring up another discussion and I mention just for the sake of keeping it in the back of your mind: If the numbers miss, QE is here to stay through midyear easily and perhaps into 2014. Would equities traders rally the market on that prospect?
I would be a buyer on yen-based pairs at what I call “wishlist” prices, in other words, I want a low price that would likely be hit on the NFP volatility. The risk is this is that if the number is so clearly better-than-expected, there may be no downside correction, in which case the entire play is a short-term intraday “momo” (momentum) sprint. By the way, these longer-term correction entries have a shelf beyond tomorrow’s data. I use a combination of uptrend support levels, past lows, and price movement range studies to come up with these prices which I will park with limit orders.
For the USD/JPY I will be a buyer at 96.20; just below the 50DMA (daily moving average) is my stop loss. A more aggressive trader could build a position around the 97.00 major psychological level.
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