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Canadian Dollar Offering A Volatile Range Trade Against The Yen

With much of the major, scheduled economic data that has ties to general risk trends and global interest rate trends past us, there is a little breathing room for taking range trades in the more volatile pairs. Certainly, CADJPY is an active pair with significant intraday swings; yet its range is appealing, whereas those congestion bands the majors have already put in for significant pull backs and are no longer actionable at current levels.
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Trading Tip – With much of the major, scheduled economic data that has ties to general risk trends and global interest rate trends past us, there is a little breathing room for taking range trades in the more volatile pairs. Certainly, CADJPY is an active pair with significant intraday swings; yet its range is appealing, whereas those congestion bands the majors have already put in for significant pull backs and are no longer actionable at current levels. Our suggested strategy is for a short; and we wouldn’t recommend a long trade on this range as support is comprised of long tails, which suggests it is relatively unstable. At the same time, the short at range resistance is still a somewhat risky trade because of the rally beyond the ceiling back on Wednesday. Our stop does not cover this spike high as it is far too wide. For cautious traders, we recommend taking this position at half your normal size; or the size can be reduced and the stop set wider to improve our chances of a successful trade. To avoid excess risk we will cancel any open orders before Friday’s Canadian employment data or if price hits 105.50 before we are entered.

Event Risk Canada and Japan

Canada – Canadian economic event risk will center on a significant Net Change in Employment report due February 8, while earlier Ivey Purchasing Managers Index figures could likewise cause short-term Canadian dollar volatility. Given a relatively bearish outlook for Canadian economic growth, analysts feel that both the Ivey PMI and the Net Change in Employment report will show lackluster results for the month of January. Yet it is exactly these bearish expectations that leave risks to the upside ahead of the data releases. If either number comes significantly above consensus forecasts, we may see Canadian interest rate outlook improve and a subsequent rally in the CAD. Otherwise, traders will watch for results from a Friday morning Housing Starts report. Given that the first major piece of economic event risk will be seen on Wednesday, we believe that the coast remains relatively clear for short-term CADJPY range trade.

Japan – The Japanese yen has digested a number of its top-tier economic indicators over the past week. However, the coming week holds at least a few indicators of interest. The first noteworthy doesn’t blip on our radar until Wednesday with the preliminary Leading Economic Index for December. This indicator – used to project growth over the come one to two quarters – has been bouncing off its record lows over the past few months, so a notable print may be in order. On the following day, the export sensitive machine orders and machine tool orders will print, defining expectations for foreign demand and shipments. Finally, Friday brings the Eco Watchers survey. The indicator hasn’t been a big price mover recently, yet it still holds considerable potential nonetheless.

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