The U.S. dollar rallied significantly against the Japanese yen after both respecting major support from the century level and better than expected ISM data. Earlier in the day, Japan PM Abe advisor Fujii recommended ¥20 trillion stimulus for 2016 and looks to add ¥37 trillion over 3 years to end deflation.
In New York, the focus fell on the ISM-Non Manufacturing composite. The headline figure printed an 8-month high at 56.5, much higher than the eyed 53.3, and prior 52.9 reading. The employment component also improved from 49.7 to 52.7.
The Fed also released their Minutes and to know surprise, they are divided on the rate path amid uncertain economic outlook. Participants generally expected that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labor market indicators would strengthen
The USD/JPY 30-minute chart shows price formed an ABCD and recaptured the 101.00 level. Point D of the pattern was targeted just ahead of the 161.8% Fibonacci expansion level. If the bullish stance continues, we could see immediate upside target the 102.50 region. Longer-term resistance will come from the 50-day SMA, which currently trades at the 106.65 level.
If see selling pressure return and the 99.00 level is breached, we may see another major leg lower target the 97.50 region.
The trade: Buy USD/JPY 101.00, with a stop loss at 100.50 and take profit at 102.50. The risk/reward ratio is 1:3