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USD JPY Pullback Before Further Gains?


Jul.03.2017

Potential USD JPY Pullback Before Further Gains: We sent out a buy signal to our investing group members when the USD/JPY pair confirmed above the daily Ichimoku cloud. The pair opened above our pivot level of 112.84 at Tuesday's Sydney market open after sharp gains due to JPY weakness on Monday. With the Independence Holiday in the US, the FOMC meeting minutes on tap, and the aftermath of Japanese Prime Minister Shinzo Abe’s historic defeat in their Sunday election, could we see another USD JPY pullback before further gains? 

 

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1- Technical Points: Potential USD JPY Pullback Before Further Gains

Daily Time Frame:  After confirming above the daily Ichimoku cloud on June 27th, the USD/JPY pair consolidated for 3 days before it made its next move towards the pivot level. We already have all three of our  Ichimoku Secrets triggers confirmed. We then saw a pullback towards the upper band of the cloud, creating a perfect buy opportunity, which is when we sent out our buy signal to our investing group members. However, the future cloud seems to be in the red before turning green again.  This could be good news for those who missed out on the buy signal.

 

Potential USD JPY Pullback Before Further Gains Potential USD JPY Pullback Before Further Gains

 

Fun Fact: Ichimoku strategy works best for Japanese Yen crosses. Because it is mostly used by Japanese traders. However, as Ichimoku users grow in number, we could expect more accuracy across other securities as well.

 

Monthly Timeframe: On the monthly time frame the USD/JPY pair is perfectly supported by the upper band of the monthly Ichimoku cloud. It appears to be forming a Saucer Bottom pattern, with neckline set at 116.85. This observation backs up out long-term bullish outlook on the pair.

Potential USD JPY Pullback Before Further Gains - Monthly Chart Technical Analysis Potential USD JPY Pullback Before Further Gains - Monthly Chart Technical Analysis

2- Fundamental Points

The second point of the IDDA suggests looking at the economic and political developments that could impact the currency pair.

 

Japan Side: The Japanese Yen weakened across the board after Japanese Prime Minister Shinzo Abe’s party suffered a historic defeat in an election in Tokyo on Sunday, signaling trouble for the premier. The dismal showing for Abe's Liberal Democratic Party (LDP) in Sunday's Tokyo Metropolitan Assembly election was a stinging rebuke for his Abe's administration. On the surface it was a referendum on popular Governor Yuriko Koike's year in office.

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US Side: American traders will be off for the US Independence Day on 4th of July. However, they will be awaiting the Federal Open Market Committee (FOMC) Meeting Minutes (JUN 14) on Wednesday at 6 PM GMT. The minutes will provide in-depth insights into the economic and financial conditions that influenced the Fed’s vote on raising the interest rates for the second time in 2017  by 25 basis points to a range of 1% to 1.25%.

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The string of better-than-expected data prints out of the U.S. economy has lifted yet another interest-rate hike expectations. The Fed Fund Futures now shows a greater than 60% probability for a December rate-hike. The FOMC Minutes may reinforce expectations for higher borrowing costs. Fed head Janet Yellen and her gang remain confident in achieving the 2% inflation-target over the policy horizon, and the fresh remarks may spark a bullish reaction in the US dollar, if the committee shows a greater willingness to start unloading the balance sheet over the coming months.

3- Market Sentiment

Market sentiment analysis is the 3rd point of the IDDA, taking a contrarian view to crowd sentiment. Retail trader data on Monday showed 54.3% of traders are net-long the USD/JPY.  However, traders are less net-long than the previous trading day and compared with last week. Recent changes in sentiment warn that the current USDJPY price trend may soon reverse higher despite the fact traders remain net-long.

 

So, Can We See a USD JPY Pullback Before Further Gains?

Disclaimer (1): As 4th point of the IDDA, you must calculate your risk tolerance before deciding on which trading strategy is suitable for your portfolio. We normally do not recommend trading without three or more confirmations of a specific direction from technical, fundamental and market sentiment points of view.

Disclaimer(2): Forex is one of the HIGHEST risk investing instruments there is. If you don't have sufficient risk tolerance to trade forex, you can try investing other online securities.

Final thoughts: Based on our IDDA outlook, the USD/JPY pair has a high potential of seeing gains towards 114.29 and 115.47 in extension. However, traders with lower risk tolerance could set a buy limit order at lower levels than the current market price. This will enable them to combat a potential pullback risk due to FOMC meeting minutes volatility, after the US 4th of July holiday.

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Combining all points of the IDDA, here are Invest Diva's calculations for important approximate levels to keep an eye on:

 

Support Levels Turning Point Resistance Levels
109.41 111.68 114.29
110.63 112.84 115.47

 

 

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