On Thursday data showed core machinery orders fell 3.6% month-on-month in July after a 7.9% decline in June. This raises concerns that lower investment will undermine a recovery from an economic contraction in the second quarter and increases pressure on the Bank of Japan to expand its quantitative easing program to provide more monetary stimulus for the economy.
At the policy meeting next week Bank of Japan is expected to lower the outlook for growth as exports fall due to slowing Chinese economy and global growth. Lower exports with falling investment and weak consumption indicate continued yen weakness against the US dollar. The job openings and labor turnover data meanwhile showed job openings in US surged to a record high of 5.75 million in July as the number of positions waiting to be filled jumped by 430,000. This points to further tightening of the labor market as companies were unable to find enough qualified workers to fill the vacancies. This increasing the likelihood of interest rate hike by the Federal Reserve, contributing to dollar’s strength.
On the daily chart the USD/JPY has been rising above the 200-day moving average. The parabolic indicator gives a buy signal. The 5-day moving average has reached the 10-day moving average and is about to cross it from below. The RSI-Bars oscillator is also rising. We believe the bullish momentum will continue after the pair closes above the fractal high at 121.591. A pending order to buy can be placed above that level. The stop loss can be placed below the last fractal low at 118.59.
After placing the pending order the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. More conservative traders can switch to the 4-hour chart and move the stop-loss in the direction of the trade. If the price meets the stop loss level without reaching the order, we recommend cancelling the position: the market sustains internal changes which were not considered.
- Position: Buy
- Buy stop: above 121.591
- Stop loss: below 118.59