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James Hyerczyk

The USD/JPY is the market to watch today for the best trading opportunity, but if you are a bullish trader, it is going to need help from the U.S. equity markets. The price action so far this week in the USD/JPY is mirroring the equity indices because of the carry trade.

The U.S. Dollar is moving up along with the equity indices because investors are borrowing in Japanese Yen and converting to U.S. Dollar. If this strategy continues to gain footing then look for the current two day rally to extend.

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Yesterday’s close put the Forex pair on the strong side of a long-term downtrending angle at 123.085. This angle is the last major resistance angle before the 125.272 main top from August 12. The early price action today suggests that investors have recognized the angle as support.

The sustained move over 123.085 is signaling the presence of buyers. However, momentum is weak which suggests they are also waiting for a catalyst to drive the market higher. The first catalyst could come at 8:30 a.m. ET with the release of the U.S. building permits and housing starts. The second could be the FOMC Meeting Minutes at 2:00 p.m. ET.

If the USD/JPY finds support then look for buyers to go after the November 9 top at 123.596. This top is the trigger point for a possible acceleration to the upside. A move through this level will also reaffirm the uptrend.

The daily chart indicates there is plenty of room to the upside over 123.596 with the next likely target over the near-term the 125.2720 main top.

Trading the long side today will come with limited risk because a failure to hold the angle at 123.085 will signal a shift in momentum back to the downside. Aggressive counter-trend traders may even want to consider playing the short side of the market if this angle is taken out with conviction. If this occurs, investors will set their sights on the main bottom at 122.217. Taking out this bottom will turn the main trend to down. This will likely occur if the stock market starts to break hard.

Look for a bullish tone today as long as the USD/JPY holds above 123.085. Watch for a possible acceleration to the upside on a sustained move over 123.596. Also watch the U.S. equity markets to help gauge the volatility and direction of the market today. 

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