USD/JPY is showing a buy signal on the bottom of the shallow rising channel on its 4-hour time frame. The pair has already bounced off the support area with stochastic indicating oversold conditions and exhibiting a bit of buying momentum.
If the bottom of the channel does hold as support and confirms the buy signal, USD/JPY might rally back to the top of the channel around the 104.00 major psychological resistance. A weak rally could last until the middle of the channel around 103.00.
Buy Signal Confirmation for USD/JPY
Fundamentals favor a long USD/JPY position for now, confirming the buy signal. For one, the Fed is likely to carry on with its taper plans of reducing asset purchases each month. This follows from the improvement in hiring data. Although the latest non-farm payrolls release fell short of consensus and failed to bring the jobless rate down from 6.7% to 6.6%, it was able to bring the US economy back to its pre-recession levels when it comes to total employment.
As for Japan, the BOJ statement turned out more hawkish than expected and provided strong support for the Japanese yen. BOJ Governor Kuroda mentioned that the economy hasn’t slowed down because of the latest sales tax hike. He said that there were some warning signals from recent Tankan data, but that he is confident the economy will achieve its 2% CPI target by the end of the year.
Further upward movement for the stochastic indicator would confirm the buy signal for USD/JPY. The FOMC meeting minutes are up for release today and this might trigger the expected bounce for the pair if the report shows hawkish remarks from Fed policymakers. Recall that it was during this Fed statement that Yellen hinted that the US central bank might start hiking rates around six months after asset purchases end.
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