USD/JPY has climbed higher over the past few months and invalidated a potential double-top pattern after it broke out above 105.43, the prior 2014 high made at the beginning of the year.
The recent dollar rally has been very strong against the yen, but it may see some profit taking occur as price tentatively respects the 200-monthly SMA. If price is able to continue to make new highs, initial resistance may come from 106.70 which is the 127.2% Fibonacci expansion level of last year’s high to this year’s low move. Further upside may eventually target the 161.8% expansion level of 108.37.
As the U.S. economy steadily improves, the same can’t be said about Japan. The Bank of Japan continues to print money and ultimately their currency is being devalued in Japan. This monetary stance of low interest rates and record quantitative easing should have encouraged the Japanese to spend, but it hasn’t.
Last week, I mentioned that the upside of 106 will remain difficult to break unless we see U.S. yields surge. Yields did surge and the bullish trend is firmly in place. The end of year forecast still remains at around the 110 region.
The trade: Buy USD/JPY at 106.25 with a stop loss at 105.75 and a take profit at 108.25. The Risk/Reward Ratio is 1:4
Edward J. Moya
WorldWideMarkets Online Trading