Background
More resilient US economic data today boosted the dollar with bond yields rising sharply, thus adding to the interest rate differential that supports a long position in the USDJPY. Next week will be a big one for this cross.
The Federal Open Markets Committee meeting on Wednesday and Thursday will be followed by the usual statement on monetary policy. There will be no change to the fed funds rate target, but the commentary will contain forward guidance that will be eagerly dissected by the markets.
Also on Thursday, we will see an update from Japanese authorities on economic projections for the next two years. Comments on the outlook for inflation will be a key focus.
Management and risk description
The dollar’s sell-off from this month’s 110.10 peak has only been a 3 wave sequence (as discussed last Monday, click here) and this has enabled the USDJPY to recover these past few days (see daily chart below).
Having completed a bullish short term inverse head and shoulders formation (see hourly chart below), a minor reaction would set up a worthwhile buying opportunity for the resumption of dollar’s recovery toward the mid to late 109.00s.
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Parameters
Entry: Will try to buy USDJPY today around 107.70
Stop: 107.30 initially, trailing stop to break-even and better once 108.50 is cleared
Target: 109.60
Time horizon: allow several days for target to be met
USDJPY daily chart (click to expand)
USDJPY hourly daily chart (click to expand)