With liquidity very thin for the rest of the week, I will take a quick look at our medium-term outlook for USD/JPY. In my previous posts, I highlighted that this may be the cleanest trade for the next year because we have one central bank (the BOJ) considering adding more stimulus and another bank (the Fed)looking to reduce theirs.
As U.S. economic data continues to improve, fuel for the fire that is driving dollar-yen higher will continue to ignite this rally. Today, jobless claims came in better than expected at 338,000 versus an expected 346,000 and much better than the prior reading of 380,000.
Price action on the daily USDJPY chart is trending comfortably above the 200-, 100-, and 50-day Simple Moving Averages (SMA). The key breakout above the yellow triangle helped confirm the move higher and despite the belief that this move is well overdue for a correction, traders may look for a move towards 106.40 if we see the 105.00 barrier taken out. Eventually by the end of the first quarter, we may see on strong attempt to take out 110.
The trade: Buy USD/JPY at 105.40, with a stop loss at 104.90 and a take profit at 106.40. The Risk/Reward Ratio is 1:2.
Edward J. Moya
WorldWideMarkets Online Trading