Since the middle of July, price action on USD/JPY has been relentlessly bullish. The improving U.S. labor market and the record run stocks have had, all supported the rally towards the 110 barrier. The problems are however growing for dollar bulls. The Fed’s Minutes show that the global slowdown is a serious concern for the US economy and that has kept yields down for US treasuries. The yield on the current 10-year note continues to fall (2.34%as of this writing)after respecting the 200-day SMA average on September 18th. Critical support remains at the 2.30% zone and this level could hold if we do not see the Fed become overly dovish in the future weeks. Rising US Treasury yields may drive foreign investment back to the greenback and that could have a positive correlation for the USDJPY pair.
The current slide that has occurred with dollar-yen appears to have tentative support from the 107.95 area, which is the 23.6% Fibonacci retracement level of the 101 to 110 move. If we do see further weakness, buyers may target the 38.2% Fibonacci retracement at 106.64. Only a close below that level will change my overall bullish stance. Major support will come the 50.0% Fibonacci retracement, which also resides along the 50-day SMA at 105.59.
My key upside target for the end of the year remains the 112.50 level.
The trade: Buy USD/JPY at 106.75 with a stop loss at 105.75 and a take profit at 109.75. The Risk/Reward Ratio is 1:3
Edward J. Moya
WorldWideMarkets Online Trading