USD/JPY: in danger of breaking higher

At the end of last week, two major investment banks sent out sell recommendations on USD/JPY when it was trading around 96.50/97.00. Most of the justifications for these trades came from the Treasury markets. The market fell quickly down to 94.50 but has rebounded just as quickly back again.

Where to from here? I say higher. My argument is that JPY cross short covering will win the day over fundamental arguments in the short term. Watch for stop losses above 97.50 in USD/JPY and for more if the market gets back above the top of Ichimoku cloud, now at 98.10. An interbank dealer friend of mine tells me the market is quite short USD/JPY and I think it’s going to be caught out.

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