Back on January 2nd of this year, while USD/JPY was trading near 115.00, we made which appeared to be a bold claim that USD/JPY was projecting upwards to an initial target of127.30. You can read the post here. While the premise was entirely technically based on the monthly USD/JPY close, there was some fundamental logic to support the view as well.
This past week, dollar Yen broke above the 130 level reaching a high of 131.25. With the renewed interest in the dollar’s strength vs the Yen at new 20 year highs, traders may want to pause on the fear of missing out trade. Since December 31st 2021, where the US dollar lagged all other pairs in it’s strength vs the Yen, it now leads them all with a 27% increase.
One of the benefits of trading FX markets is that we have the ability to immediately position ourselves with our viewpoint, both technically or fundamentally driven. At the beginning of 2022, it was clear from both a technical perspective and fundamental one that USD/JPY had upside potential.
The question now becomes, what’s the next move for USD/JPY? From a momentum perspective, we see the potential for further upside to 134.60, but we wouldn’t be reaching for offers above the 131 area. There is a more likely scenario of a pullback below 128 at which point we will wait for confirmation first before any long recommendations. If however you want to look at the fundamental picture, Dollar Yen hints at telling us that we may be underestimating the current US inflation rate.
This week initial dynamic resistance appears at 131.55/65 and dynamic support at 127.85/95.