Will USD/JPY Change Trend to Up This Week?

The USD/JPY closed at 110.084 after reaching its highest level since the Bank of Japan meeting on April 28, finishing up 1.459 or +1.34%. The rally was supported by speculation that the Federal Reserve will likely raise interest rates in June if economic data points to stronger second-quarter growth as well as firming inflation and employment, according to minutes from the U.S. central bank’s April policy meeting released on May 18.

The view expressed by most Fed policymakers at the last monetary policy meeting, suggests the central bank will lift interest rates much sooner than professional investors expect. This could create tremendous volatility over the near-term as many major players are still holding short long Japanese Yen positions. If data continues to support a rate hike in June then look for the USD/JPY to surge over the short-run due to a massive amount of short-covering. Higher interest rates will make the U.S. Dollar a more attractive investment.

Technically, the USD/JPY is setting up nicely on the weekly chart for a potential surge to the upside. We just completed the second week since the closing price reversal bottom the week-ending May 6. The two week rally has made 105.543 a new main bottom and the close at 110.084 has put the market in a position to challenge the last main top at 111.879. A trade through this level will turn the main trend to up.

Typically, a closing price reversal bottom leads to a 2 to 3 week rally equal to at least 50% of the last break. This week is the third week up from the bottom. If we continue to post higher-highs and higher-lows beyond the third week then this will signal that the buying is getting stronger.

The short-term range is 111.879 to 105.543. Its 50% level at 108.711 has been met and exceeded. It should be considered new support.

The main range is 121.678 to 105.543. Its 50% level comes in at 113.611. If the current rally exceeds the main top at 111.879 then we could see a huge surge over the near-term into this 50% level.

Based on last week’s close at 110.084, buyers are going to have to overcome the steep uptrending angle at 111.543 in order to maintain the upside momentum. Holding above this angle will put the USD/JPY in a position to challenge the main top at 111.879.

Taking out 111.879 will turn the main trend to up on the weekly chart. This could trigger an acceleration to the upside with a downtrending angle at 113.178 and the 50% level at 113.611 the next targets.

A sustained move under the downtrending angle at 109.879 will signal the presence of sellers. This could drive the USD/JPY into the short-term pivot at 108.711 and the uptrending angle at 108.543.

Simply stated, look for a bullish tone to develop on a sustained move over 111.543 and bearish tone on a sustained move under 109.879.