Daily Observations: January 11, 2013

DailyFX

Current Positions:

- Long EURCHF from 1.2018, Stop at 1.1990, Target 1 at 1.2500, Target 2 at 1.2750

Recently Closed Positions:

- Closed Short EURAUD from 1.2720 at 1.2450 for +270-pips (Monday)

- Exited Long USDJPY from 83.88 at 83.55 for -33-pips (Monday)

Time Frame: 1-day to 1-week

This was a quiet week of trading for me overall, as I was feeling a bit under the weather and don't like to trade when I'm not "100% there," mentally speaking. With that said, the Short EURAUD trade was closed on Monday for a solid +270-pips, a trade initialized back in mid-December, while my only stab at trying to buy the dip in USDJPY was stopped out; more prudent analysis would have seen the gap at the weekly pivot and placed the stop below there (hindsight is 20/20), as the pair has traded well-above the original entry point.

The Japanese Yen is the biggest focus this week: the January 22 meeting is around the corner as markets price in new ultra-dovish policies from the Bank of Japan. Put simply, the Japanese Yen is a very oversold currency (highest weekly RSI in USDJPY since December 2005; highest weekly RSI in EURJPY since December 2006). In fact, according to the CTFC’s COT report, net non-commercial futures positioning is at its shortest level since July 2007; the short trade is very crowded. A look at the weekly chart shows that the USDJPY hasn’t posted a negative period since the first week of November. Accordingly: seeing the Japanese Yen bottom (xxxJPY pairs top) after the BoJ would not be surprising; the conditions are ripe for a significant turnaround. I'm watching for an exhaustion point, especially considering that another round of US debt negotiations is around the corner.

Any other trade ideas and general macroeconomic musings can be found in the Real Time Newsfeed, or by following me on twitter @CVecchioFX.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

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