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USD/JPY Headed to 114
Given the rise in stocks and the jump in Treasury yields, USD/JPY should be trading higher. Fundamentally, President Trump’s policies from inflation to corporate tax reform, spending, protectionism and future Fed hikes are positive and not negative for the greenback. His latest executive order to build a Mexican wall is an infrastructure spending project that should create jobs and demand for building material. So why the dollar is not strengthening? The problem that the greenback is having right now is two fold – first Trump has been talking down the currency and second, his policies make foreign investors nervous. But the President’s comments on the dollar tend to only have a short-lived impact on the market and foreign investors should be drawn in by the gains in stocks.
Technically, we view any drop towards the double bottom at 112.50 as a buying opportunity. While 114 is an important resistance level, we expect the currency pair to rebound and retest that level in the coming days. Of course a meaningful break below 112.50 would pave the way for a stronger sell-off that could see the currency pair fall to the 111 handle.