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James Hyerczyk

The Dollar/Yen closed sharply higher last week and in a position to continue to drive higher this week. The catalyst behind the bullish price action is the divergence in monetary policies between the hawkish U.S. Federal Reserve and the dovish Bank of Japan. The upside momentum was fueled last week when the Fed raised rates a quarter-point and signaled another rate hike for December. Strong U.S. economic data and an easing of concerns over trade disputes also supported the rally.

For the week, the USD/JPY settled at 113.685, up 1.137 or +1.01%.

Weekly USD/JPY

Weekly Technical Analysis

The main trend is up according to the weekly swing chart. The uptrend was reaffirmed when buyers took out the previous main top at 113.210. The uptrend is safe for now with the last main bottom coming in at 109.770. However, there is always the danger of a closing price reversal top. This won’t change the main trend to down, but it will indicate the selling is greater than the buying at current price levels. This could also trigger a 2 to 3 week correction.


Weekly Technical Forecast

Based on last week’s price action and strong close, the direction of the USD/JPY this week is likely to be determined by trader reaction to the former top at 113.745.

A sustained move over 113.745 will indicate the buying is getting stronger. If this creates enough upside momentum then look for the rally to extend into the next main top at 114.728.

A sustained move under 113.745 will signal the presence of sellers. The first target is the former top at 113.210. Crossing below this former top will indicate the selling is getting stronger. The best downside target is an uptrending Gann angle at 112.770. This angle, moving up at a rate of .50 per week, has been guiding the market higher since the 109.770 bottom, the week-ending August 24.

The fundamentals are bullish at this time. The momentum is strong and the targets have been defined. It seems the only thing that could derail the rally at this time is a drop in demand for higher-risk assets, or trouble with the emerging markets. These issues could be raised by renewed concerns over the trade disputes. In this case, the Dollar/Yen could weaken due to flight-to-safety buying into the Japanese Yen.

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