Fed transparency is losing credibility and markets are transitioning into a different trading mode. Last year, we expected QE to end in June, then were surprised when they incorrectly queued up the September taper and now they abandoned the 6.5% unemployment threshold. The key takeaway for currency traders is that if we continue to get strong data out of the U.S., we should continue to see massive moves to USD/JPY positions as long as the yields on U.S. treasuries continue to rise.
Rates are going to go higher and we will see more rises than anticipated. When the yield on the 10-year treasury hits 3.0% and probably surges higher, we should not be surprised if we see USD/JPY finally make a run towards 110.
The double bottom pattern this month is currently providing major support for USDJPY at the 101.00 level. The key price barrier remains the 100.50 level and this is only likely to see a move if we see a major risk off event over the next couple weeks. Strong buying will be supported by macro traders and this pair finally make a bullish move all the way into next week. Initial upside targets include 104.37 which happens to be the 127.2% Fibonacci expansion level March high to low move.
The trade: Buy USD/JPY at 102.30 with a stop loss at 101.80 and a take profit at 104.30 The Risk/Reward Ratio is 1:4
Edward J. Moya
WorldWideMarkets Online Trading