Good Morning, Friends. While the Abe government in Japan remains committed to generating a degree of inflation, weakening the Yen, and doing whatever else is required to give the local economy a boost, slowing in China and skepticism as to whether the prescribed medicine will work have made progress erratic, at best. USD/JPY, although well off its worst levels, has had trouble escaping gravity’s pull, and in fact, has sagged in recent weeks.Â
Now, however, there may be a decent ratio of potential reward to risk in getting long USD/JPY. The current level, 97.80, is just above the 50% retracement from the recent low (93.77) to high (101.55). Although price action trumps everything else, the stochastics are showing a very oversold condition, and are more reliable in pointing to possible bottoms than to tops. Â Yesterday’s low at 97.60 provides a convenient reference point for a stop, and although exporter orders are rumored to lurk at 98.50, a move through that level creates some blue sky. My suggestion would be a small long position around current levels, with a partial profit target of roughly 60 pips to 98.40, and a stop just under 97.50, a level which I would expect to be defended. If there is a break above 98.50, I would look to add to any remaining long position, using 98.38 or so as a stop.Â
Apart from levels that are attracting orders, there is an FOMC rate announcement tomorrow (which seems unlikely to do much), and a European Central Bank press conference on Thursday. the latter could be a catalyst for EUR/JPY; a move higher should pull USD/JPY with it. That pair, too, has moved into an area where it could reasonably be purchased.Â
We’ll see if we get some movement over the next couple of days; best of luck!
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