USD/JPY Headed Above 124

USD/JPY Headed Above 124

USD/JPY Headed Above 124

The latest decline in USD/JPY should give us the opportunity to buy the currency pair at a lower level. About 90% of economists expect the Fed to raise interest rates next month and based on the Fed fund futures, investors have pretty much priced in the move which is why we firmly believed that last week’s correction was technical and not fundamental. While it could be argued that the dollar sold off because the market had completely discounted a rate hike, with more than 3 weeks to go before the FOMC meeting, there’s still juice in the long dollar trade. In fact we expect the dollar to shine leading up to the December 16 monetary policy decision and to fall once the Fed makes it clear that future rate hikes will follow a very gradual path. This shortened trading week should also be good for the dollar because most of the economic reports on the calendar are expected to highlight the recovery in the U.S. economy. This includes Tuesday’s Q3 GDP report, which economists believe will be revised higher. Consumer confidence should also benefit from the improvement in the labor market and low energy prices. The Japanese Yen on the other hand will remain under pressure as the Japan’s economy struggles to recover. The Bank of Japan refuses to deliver more stimulus which will only delay the recovery.

Technically, any decline in USD/JPY should stop above the 100-day SMA of 121.75 because there’s a lot of support between where the currency pair is trading now and that key level. The November 16th spike low of 122.22 sits right above the 61.8% Fibonacci retracement of the June to August decline and right below there is the SMA. Even if the SMA is broken, the 50% Fib of the same move hovers not far below at 121. There’s near term resistance at the November high of 123.75 but we believe this level will broken and USD/JPY will settle between 124 and 125.

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