USDJPY to 112?

USDJPY to 112?

USDJPY to 112?

From a fundamental perspective, there’s no reason not to expect USD/JPY to hit 112. The recent push higher in the greenback was supported by stronger spending, housing and inflation data along with hawkish comments from Fed hair Janet Yellen. U.S. yields extended their gains at the end of the week with 10 year yields topping 2.34%. However with no major U.S. economic reports on the calendar next week and U.S. markets closed for the Thanksgiving day holiday on Thursday, there’s a reasonable chance for profit taking in the coming week. The November Fed minutes is the only event risk worth watching and we don’t expect the report to alter the market’s expectations for Fed tightening. Pullbacks in the dollar should remain shallow but it has been 10 to 11 days since we’ve seen a meaningful sell-off in the greenback versus EUR and JPY. For USD/JPY this is the longest stretch of gains since May 2015 and while the next major level of resistance isn’t until 112, we should see a pullback before that target is reached.

Technically, the first “area” that the USD/JPY rally could stall at is near 111.45, the May high. If this level is broken, the next stop will be 112. Pullbacks in USD/JPY should take the pair below 110 and possibly to 109.50, at which point fresh buyers are likely to swoop in and at worst we see USD/JPY pulling back to 108.75, the 50 and 200-week SMA cross but that deep of a pullback is unlikely.

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