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By Matthew Weller, FX360.com

With no major news reports anticipated this week (the biggest U.S. release is Thursday’s Trade Balance data, a relatively minor concern for traders), the market should take its cue from some of the key technical levels established last week. Out of all the major currency pairs, the USD/JPY has one of the clearest support levels, providing a straightforward buying opportunity.

The USD/JPY predictably rallied Friday following a better-than-expected Non-Farm Payroll announcement. However, the pair has since pulled back and is once again approaching 78.00. As we’ve noted in the past few Candlestick Daily reports , the 78.00 has been a rock solid support level, with rates bouncing from within 10 pips of this zone at least 9 times in the past week alone. Volatility in the USD/JPY has been constrained in the past few days, but simply buying near this support level and looking a shallow profit target near the recent highs at 78.50 could still provide a strong risk/reward ratio with a tight stop below 78.00.

Specifically, traders could set a limit buy at 78.10 (near 78.00 support) with a stop at 77.90 (under last week’s lows) and a target at 78.50 (below previous resistance from last week). This trade would be invalidated if not triggered in the next 48 hours.

 

On another note, last week’s trade idea on the AUD/NZD ( “Strong AUD/NZD Sell Insulated from NFP” ) has triggered and continues to follow its bearish trend line lower as expected. However, a potential event risk is upcoming from tomorrow’s Reserve Bank of Australia interest rate meeting. Though few expect the RBA to cut interest rates at tomorrow’s meeting, a hawkish statement could still push the Aussie up from a fundamental perspective.

Technically speaking, the bearish trend line has withheld two tests since the trade was posted, and with the trend line far below the current stop loss, a quick adjustment would be prudent. Namely, traders could look to move the stop from the current 1.2970 level down to 1.2936 (above Friday’s high), cutting out more than half of the risk on the original trade.

 

Potential Strategy: Buy if USD/JPY pulls back to 78.10, stop at 77.90, target at 78.50. Move stop on open AUD/NZD trade down to 1.2936.

 

 

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