USDJPY recently found resistance at the 103.00 major psychological level and turned right back down, suggesting that another test of the range support might take place. Stochastic is already in the oversold zone and moving out though, which means that the bounce from the middle of the range is also possible.
If that happens, USDJPY might make another attempt to test the 103.00 handle and possibly go for an upside breakout if buying momentum is strong enough. On the other hand, further losses could see the pair at the 101.00 support zone, which might continue to hold as a floor for any selloff.
A USDJPY bounce off the 101.00 area could lead to another test of 103.00 so going long at the bottom of the range with a stop around 100.50 could offer a good return on risk. However, a downside break might also be possible if the selling momentum is strong enough.
USDJPY Trade Outlook
Last week, the US economy printed a weaker than expected NFP report, casting doubts that the recovery can carry on and that the Fed will move closer to hiking interest rates. A closer look at the components of the data reveals signs of improvement, particularly in the participation rate, which might still lend support to the US dollar and USDJPY.
As for Japan, data has been mostly weaker than expected months after the sales tax hike was implemented in April. Although the BOJ insists that the effect will just be temporary, it seems that the Japanese economy is struggling for now. The upcoming BOJ interest rate decision should shed more light on this matter and indicate whether policymakers are shifting to a more dovish stance or not.
A change in BOJ rhetoric could drive USDJPY to the top of its range and beyond. However, if the BOJ remains stubbornly hawkish, the pair might make a test of the range support and perhaps attempt to break lower.
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