Daily Observations: May 14, 2013

DailyFX

Current Positions:

- Short AUDUSD (1/4) from 1.0150, Stop at 0.9980 (+170-pips locked-in), Target 3 at 0.9900 (+250-pips), Target 4 at 0.9860 (+290-pips) [final reward:risk 1.61]

- Long USDJPY (1/2) from net 100.07, Stop at 101.10 (+103-pips locked-in), Target 2 at 102.00 (+193-pips) HIT, Target 3 at 103.20 (+313-pips) [final reward:risk 2.32]

Recently Closed Positions

- (05/13) Short AUDUSD (1/2) from 1.0150 at 0.9980 for +170-pips.

- (05/13) Long USDJPY (1/2) from net 100.07 at 102.00 for +193-pips.

- (05/14) Short AUDUSD (1/4) from 1.0150 at 0.9900 for +250-pips.

Typical Time Frame: 1-day to 1-week

Further Australian Dollar weakness on the back of the government's FY2013-14 budget has achieved the third target on the AUDUSD short initiated last week, netting +250-pips on 1/4 of the original position. Assuming the last 1/4 of the short AUDUSD position is stopped out at 0.9980 or the limit is hit at 0.9860, my net-profit on the entire trade will be between +190- and +220-pips.

I'm close to adding back in on USDJPY, now that it is behaving like a breakout/momentum pair once more. Per my full time frame continuity EMA crossover system, with the 4H and daily time frames issuing bullish signals (8-EMA > 21-EMA, >200-DMA on both time frames), a 1H bullish crossover will issue a buy signal in USDJPY as long as price holds >101.75 by European market close on Tuesday.

Something to watch for: the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) is showing bearish RSI divergence, with price eclipsing the mid-March highs but RSI not confirming. Accordingly, we need to be on alert for a naer-term technical pullback. In such an event, and assuming the Yen remains weak, I prefer long EURJPY to long AUDJPY or GBPJPY on a recovery. If the Yen corrects as well, AUDJPY and GBPJPY are likely to bear the brunt.

Are you new to FX or curious about your trading IQ?

As always, any other trade ideas and general macroeconomic musings can be found in the DailyFX Real Time News feed, or by following me on Stocktwits/Twitter @CVecchioFX.

I also host a weekly Live Trading Q&A in DailyFX Plus, on Tuesdays at 07:15 EST / 12:15 GMT, in which I delve deeper into my positions and thought processes behind my analyses. [View the archive of my most recent webinar here]

--- Written by Christopher Vecchio, Currency Analyst

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

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