USD/JPY Outlook and Levels

USD/JPY Outlook and Levels

USD/JPY Outlook and Levels

USD/JPY is under pressure because of the risk aversion created by the Greek debt crisis. We are long the currency pair and it is trading below our entry levels. While there’s no doubt that Greece’s problems will worsen before they improve and this could trigger more liquidation out of Yen pairs, we believe that the decline in USD/JPY will be limited. Federal Reserve officials like Dudley continue to favor raising rates in September and even though the Greek debt crisis could delay a rate hike, unless U.S. stocks fall by 10% or more, it is unlikely to do so. The Fed could push out tightening to December but we are still looking for rates to rise this year and as long as that remains the case, we are bullish dollars. In fact, we believe that the crisis in Greece, China and Puerto Rico only makes U.S. assets more attractive.

USD/JPY has fallen 385 pips off its high and in the past 2 years we have not seen a retracement exceed 500 pips. While we have no desire to see USD/JPY decline more than it has, if it falls another 115 pips it would trigger our second entry at 121.27, giving us a better average price. 122 is also a technically significant support level because it was former resistance in March. If this level breaks, the psychologically significant 120 level should hold. If USD/JPY recaptures 123, the next stop should be 124.35.

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