The equity markets are off to a rough start this week as the boards of two prominent banking institutions announced the forced resignations of their CEOs. The markets seem to have gotten a bit ahead of themselves by over-discounting the apparent end to this credit crisis. The S&P is almost 4% lower since mid-May, and the carry trades have followed suit with two big figure drops into the end of May. However, I believe this market is range-bound in the bigger picture, so fading the range extremes (buying the lower end of the range and selling the top) is the preferred trading theme. This morning risk aversion is high as the equities and carry trade head lower, but USD/JPY has pulled back into a nice technical support level that could offer a tradable bounce.

I am watching a key technical area of 104.40-50 as solid support. This zone is defined by the area of the previous 4th wave of one lesser degree (a classic Elliott Wave support level), the 50 % retracement level, and parallel channel support. For now, I am long at an average of 104.56 with stops for everything below 104.30. Targets to remain open for now.



Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

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