USD/JPY Needs to Break 117

USD/JPY Needs to Break 117

USD/JPY Needs to Break 117

The bulls have finally loosened their reins on the U.S. dollar but a move below 117 in USD/JPY is needed to pave the way for deeper reversal. The surprise decline in pending home sales combined with a sharp drop in U.S. yields sent the dollar tumbling against the Yen. However even with this decline the greenback managed to end the day in positive territory versus euro, sterling and Swiss Franc. The commodity currencies have found a near term button and chances are in the next 24 to 48 hours we should see a further pullback in the dollar. There are no U.S. economic reports scheduled for release tomorrow so all the dollar needs is another day of lower yields. Short-term price action aside, with the Federal Reserve looking to raise interest rates three times next year, 2017 should still be a good year for the U.S. dollar. Between Donald’s Trump Presidential victory, the surge in U.S. rates and record highs in U.S. stocks, global investors have found plenty of reasons to want to own U.S. assets and in turn the U.S. dollar. The moves that we have seen so far are in line with the market’s reaction to Ronald Regan’s election in 1980 and if Trump follows through we could see an even stronger rally for the dollar in 2017. Fiscal stimulus and rate hikes are a powerful combination but our positive dollar view is predicated on Mr. Trump delivering. In other words 2017 should be a good year for the U.S. dollar unless Donald Trump fails to deliver and the Fed resorts to raising interest rates only 2 instead of 3 times next year.

Technically the daily charts show quiet consolidation above 117. The 4 hour charts confirm that 117 is the main near term support level for USD/JPY – if that breaks, it should slip quickly to the 100-period SMA at 116.60. If that level is breached as well and USDJPY drops below the 12/18 low of 116.50, then the next stop should be 116.00. However if USD/JPY holds above 117 and manages to climb back above 117.50, then a move to 118 becomes once again possible.

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