The U.S. dollar remains trapped in a very tight trading range to start the trading week as everyone awaits Fed Chairwoman Janet Yellen’s testimony about monetary policy.
If the Yellen changes her stance of a summer rate hike, we could see USD/JPY drop significantly. The Minutes from the last FOMC meeting suggested that several members are supportive of keeping rates low for a little longer, despite consistently strong economic data. If we see any major pullbacks, buying dips may be a recurring theme for this pair.
If we do see a clear signal that a rate hike will occur in June or September, USD/JPY could easily be on a clear path towards 130. We may not get a very transparent message, but as long Yellen does not become excessively cautious regarding the economy, we will be buyers of this pair.
Price action on the USDJPY daily chart shows that the bullish trend that has been in place since the beginning of last summer is still in consolidation mode. With price still hanging on to the 50-day SMA, we will look to become buyers of this pair. If after the next two Fed testimony days we do not see a selloff breaking below 116.11, the bullish trend may reassert itself and look to make a run towards the 125.72 level. Further upside may eventually target the 130 region.
In the event we see major bearish momentum, major support will come from the 200-day SMA which is also just below the key 110 handle.
The trade: Buy USD/JPY at 118.75 with a stop loss at 117.75 and a take profit at 123.75. The Risk/Reward Ratio is around 1: 5
Edward J. Moya
WorldWideMarkets Online Trading