Inside Day Price Action – USDJPY Analysis 5/7/2012

• The USD/JPY is trading in a narrow consolidation range, ahead of the rate announcements from the ECB and BOE due 5th July, and the NFP report (US Nonfarm payroll) due this Friday.
• An inside day has formed as Americans celebrated Independence day and a thin NY (electronic) trading session resulted.  This is actually a double inside day, with two consecutive closes within the prior days price action.
• Dollar/yen has traded just under the 80.00 handle all week and there is potential; for a breakout scenario if the range highs are taken out.  Todays high is 79.87 and aggressive longs may be looking to preempt an 80.00 breakout entering on a move a few pips above the daily high.
• The dollar and yen have a similar profile in terms of how they are viewed in risk on/off markets at present; the currency correlation relative strength indicator shows there is little separating the safe haven currencies over recent sessions.
• With this in mind a break above 80.00 could potentially see a relatively pure “order flow” based setup unfold.  Traders need to be nimble in these scenarios though as a lack of follow through can signal an imminent trend reversal.  A false break and subsequent reversal signal can sometimes provide an entry signal in its own right.