First, let’s put things into perspective. USD/JPY is in a major consolidation phase after the 2500 pip rally to start the year. It’s a wedge and wedges narrow and then break, usually in the same direction they were going before (in this case, higher).
USDJPY longer term wedge
If you want to ‘buy it and forget it’ the pullback today is an opportunity.
…but I think we’ll see lower levels in the near-term.
The US dollar will bounce at some point but USD/JPY may be the exception. The pair touched the highest levels of the month in Asian trading today, right around the time Congress was passing legislation to end the fiscal impasse. Now, USD/JPY is at a one-week low. On the chart, that’s a bearish engulfing candle.
In order to shake off the set-up I think we’ll need to see stocks break to a new high and Treasury yields turn around. That could very well, happen but the set-up offers a low risk trade for tomorrow that could include selling at around 98.00 but covering if stocks hit at a record high and hold it for a few hours. Target the 200dma.
