Cross-Eyeing: Breakout Play on CADJPY – Closed Open Orders

Close Open Orders: 2010-06-01 4:47

PoD Chart

Doh! The CADJPY did break out… but to the bottom! Looks like risk aversion remains king of the FX markets!

The CADJPY broke out much earlier than I anticipated and to the downside, as we’re now seeing the yen and dollar gain in the US session. It looks like all those traders who came back from the long weekend are still feelin’ the fear! Take a look at the euro for crying out loud – it’s selling like hotdogs on Memorial Day! I think this strong down move in the euro is reflective of the risk averse mode that traders are in right now.

While I do believe that there is still some potential for a rise in the CADJPY tonight when the BOC makes its interest rate decision, I’m going to have to close my trade because my initial trade idea is already invalidated. I don’t feel too bad about this trade because I know the markets will always be there tomorrow!

Trade Idea: 2010-05-31 23:30

PoD Chart

I’ve zoomed into the 1-hour chart of the CADJPY and it looks like the pair has been consolidating the past couple of days and has formed a symmetrical triangle. Now, with the combination of lower highs and higher lows in price action, I think that traders are probably waiting for a catalyst for a potential breakout – which is exactly what I plan to do!

Fundamentally, I think there is more reason for a breakout to the top and here is why:

It looks like all the political tension in Japan is starting weigh down on their currency. Just yesterday, the yen found itself being traded off for other majors when news broke out that there was a split in the Japanese triple party government collation. Although a majority in the parliament still existed, this gave traders reason to believe that the government would have a harder and longer time coming to a consensus in terms of dealing with Japan’s ballooning debt, spending cuts, and worsening deflation.

Canada’s situation, on the other hand, is completely opposite. More than rising employment levels, increasing GDP, and improving inflation, there has been much speculation that the Bank of Canada will raise rates by 25 basis points to 0.50% tonight. If the prediction comes true, it might signal the beginning of the “CADJPY carry trade” era. Up, up, and away, CADJPY? We’ll just have to see!

I think with US traders coming back from the Memorial Day weekend, we could be in for big moves as traders reposition themselves in light of major news coming out this week. I’ve decided to stick a limit order above the previous highs at 88.10. Since this is just a day trade, I’ve set a stop loss of 110 pips, which is roughly half the daily ATR. This should help me whether the storm once the BOC releases its interest rate decision.

As for my take profit points, I’ve set my first take profit point at the psychologically round 89.00 figure. This is equal to the half way point of my ultimate take profit point at 90.00. As usual, once my first TP is hit, I’ll be moving my stop loss to my entry point at 88.10 to create a risk free trade.

Here’s the game plan:

Long CADJPY at 88.10, stop loss at 87.00, take profit at 89.00 and 90.00.

It looks like I’ll be having more time to concentrate on the markets this week, as the NBA Finals will be starting on Thursday night. While I wanted a Lakers – Cavs Finals, a Boston – LA matchup is just as juicy! Will Kobe’s Drive for Five overwhelm Green Machine?

Alright fellas – that’s it for now! Thanks for checking out my blog! You can also follow me at MeetPips.com!