USDJPY showed more momentum as it broke above the descending triangle resistance in today’s Asian trading session. This could be a sign that the pair is in for at least 150 pips in gains, which is the same height as the chart pattern.
Stochastic is already in the overbought area though, indicating that the rally may turn. If so, price could still pull back to the broken triangle resistance around the 117.50 minor psychological support before heading further north.
If this proves to be a fakeout though, USDJPY could retreat to the bottom of the triangle around 117.40 and perhaps attempt a downside break. Based on fundamentals though, the path of least resistance for this pair is to the upside.
Although data from the US economy turned out disappointing results this week, the Fed might still be on track to tighten monetary policy sometimes next year. In Japan, data has come in stronger than expected but still reflected economic weakness, which could keep the BOJ in an easing bias.
Household spending slumped 4.0% instead of the projected 4.8% decline while retail sales showed a mere 1.4% increase. The unemployment rate improved from 3.6% to 3.5% but wage growth was anemic at 0.7%, down 3.0% on a year-over-year basis. Although the tax hike has been postponed by Prime Minister Abe, it is likely that the Japanese economy would take much longer to move out of recession and that further easing would be necessary.
Going long USDJPY at market with a stop below 117.50 and a target of 120.00 could yield as much as a 3:1 return on risk. Adding every 50 pips could drastically improve the return ratio but it would be prudent to trail the stop in the process.
There are no event risks for this USDJPY trade for the rest of the day as most US traders are off on a Black Friday holiday after Thanksgiving.
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