U.S inflation data came out on fire this week, potentially bringing Greenback bulls out of the shadows against the major currencies. Will this break USD/JPY away from the recent range pullback and start a new leg higher?
USD/JPY Ready to Return to Uptrend?
The U.S. dollar is on a tear higher against the majors on the session, likely a reaction to the latest U.S. inflation data showing the biggest surge in prices in more than 30 years. This is a pretty big deal as it is likely to influence speculation on the Fed’s next rate move, and it looks like the early reaction from traders is that we’ll see the Fed pushing up interest rate changes to next year if these conditions persist.
This could likely be the catalyst to start a fresh swing higher in the Greenback, which has been a net loser against the major currencies throughout the month of October. Not only could traders be potentially looking at buying for fundamental reasons on this catalyst, but buying pressure may also come from USD shorts coming off the table on this news.
If this is indeed a fresh move higher for USD in general, then we’ll be watching USD/JPY as the Bank of Japan isn’t likely to tighten monetary policy anytime soon given how the BOJ recently lowered their outlook for growth and inflation. USD/JPY popped higher on the session after the U.S. CPI data, but there could be a short-term hurdle at the falling trendine marked on the four hour chart above that could draw in short-term profit taking.
If we see a dip from around there, we’ll be on the lookout to start a swing/longer-term position long on USD/JPY, specifically at the previous support area around 113.40 down to the 112.00 major psychological area/Fibs. With a starting position around the prices, the potential return-on-risk is attractive with a stop just below the Fibs and if we see another bullish run in USD/JPY, as we saw through September and October as USD/JPY rallied from 110.00 to 115.00.
What do you guys think? Is USD/JPY ready to make a fresh move higher in the current uptrend higher?
Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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