The AUDJPY is in a position to accelerate lower in a 3rd of a 3rd wave. To review - the decline from 8625 to 7617 was in 5 waves and the succeeding advance was corrective. Similarly, the decline from 8284 was in 5 waves and the succeeding advance reversed right at the former 4th wave extreme (a common area for markets to reverse). Reward / risk favors bears. The stop should be at 8100. The target is open but the minimum objective is below 7820.

The past few weeks have been quite forgettable in my discretionary trading as I’ve been stopped out of three consecutive trades. Suffice it to say I know I’m doing something wrong, so I’ll go back to my strongsuit--System trading. Check out the Trading Signals on DailyFX . I’m partial to Breakout2 trades in the week ahead, as I think we could see some sharp and directional price moves on big surprises in key event risk.

The Japanese yen itself is firmly positioned on the bottom rung of the risk spectrum. With engrained deflation, financial instability and a difficult recovery, the outlook for monetary policy is firmly rooted in a long-term hold on overnight lending rates at near-zero. This places the currency in a unique position amongst those involved in the carry trade. Further deterioration in risk appetite (which I am bearish on over the medium term) will lead to an unwinding of these yield-based positions. And, while there was no doubt considerable interest behind the carry build through 2009; these flows will only reverse so far as the varying degrees of speculators that fed into the position are tapped. As sentiment continues diminish, the yen will go as far as the yield unwinding will allow; but there will be little interest in bidding it higher as a safe haven currency.

The yen’s lack of appeal as a safe haven (due to deflation, economic and credit problems) is key to the long USDJPY position I am building. The dollar is a safe haven and is already pushing extraordinary lows against its counterpart. Therefore, I am confident in building up a position with time and meaningful technical developments. I am in a reduced position just below 89 so far; but I will build should it pull back further or should we break 90.50. Other potentials on my radar are EURJPY and NZDJPY. The former is in tight congestion after a previous plunge. Breaking its recent low can extend a clear trend. NZDJPY is reaching a rising trend and could break a notable congestion pattern. I’ll monitor these patterns over time and work with what I have.

I initially sold USDJPY at 90.14. After coming within a hair of tripping our stop-loss last week, prices turned sharply lower at the top of a downward-sloping channel established from March 2009, putting in a Three Inside Down bearish reversal candlestick pattern and sinking past the 90.00 figure. Near-term support is seen at 88.54 from here, with a daily close below this juncture exposing 87.35. I will remain short, initially targeting 86.28 with a stop-loss activated on a daily close above 91.89.

My short CAD/JPY position hit my target of 83.50-trendline support, where I prudently took profits as the pair sharply reversed on the back of strong Canadian GDP and a change in BoC rhetoric. Risk appetite has started to show signs of returning as growth figures continue to surprise to the upside. However, weak labor markets continue to keep optimism in check which makes this Friday’s NFP important. The expectations of a job loss of 58K and a rise in the unemployment rate could start to generate a flight to safety, which should reignite Yen support. The USD/JPY is looking to test support at 88.24-61.8% Fibo of 84.80-93.77. A break below increases downside risks to 87.36, but a failed attempt could be an ideal opportunity to get long the pair. The initial target would be 20-Day SMA at 89.90 with potential to 92.00.

Keeping up with the USD/JPY long recommendation from earlier this week, the exchange rate pushed lower during the last two-days and slipped to a fresh yearly low of 88.45 during the overnight trade, which has yet to trigger the long entry at 89.51. However, the sharp rebound from the low could lead to a short-term retracement later this week as the 50-Day (90.72) and 100-Day (90.18) SMA’s appear to be converging right around 90.50. As a result, I will keep the long entry at 89.51, last Friday’s high, and will target 50-Day SMA at 90.85, with the stop at the psychological level of 89.00.

Very tough to ignore a currency that has been so beaten down and that pays a nice positive carry. The cross has dropped sharply by more than 10 big figures over the past 2 weeks and with daily studies so overextended, we like the idea of establishing a long position on a break back above Tuesday’s high. A break back above Tuesday’s high will mark an end to a series of 9 consecutive daily lower highs, and should also mark an end to a series of 9 consecutive negative closes, pending a positive close on Wednesday. The drop of 9 days also coincides with a fibonacci time sequence that would also suggest that the market pullback has stalled for now. STRATEGY: BUY @133.80 FOR AN OPEN OBJECTIVE; STOP 131.80. RECOMMENDATION TO BE REMOVED IF NOT TRIGGERED BY NY CLOSE (5PM ET) ON WEDNESDAY. POSITION SIZE SHOULD BE 3X TOTAL EQUITY.