USDJPY has been moving inside a rising channel on its 4-hour forex time frame, with price gearing up to test the top of the range around the 103.50 minor psychological resistance.
Stochastic is already in the overbought zone, indicating that the USDJPY rally might end soon. However, the indicator has yet to turn from the overbought region and, until that happens, buyers could stay in control of price action.
If USDJPY turns from the top of the trend channel, price could move back to the bottom of the channel near the 102.00 major psychological support. If buying pressure remains strong though, the selloff might last until the mid-channel area of interest only.
USDJPY Trend Forecast
Shorting USDJPY at 103.50 with a tight stop around 104.00 and a target of 102.00 could yield a 3:1 return on risk. Adjusting the stop to entry once price reaches the middle of the channel could be a good way to protect profits and minimize exposure.
The main event risk for this USDJPY trade is the release of the FOMC meeting minutes, which might show that the Fed isn’t considering hiking rates yet. However, the reaction to the release might be subdued as traders refrain from taking any huge positions ahead of the Jackson Hole Symposium starting Thursday.
As for the yen, weak data from Japan hasn’t been enough to convince the BOJ to add another round of stimulus to the economy, keeping the currency supported for the time being. If they reiterate this stance during the Jackson Hole Symposium, USDJPY might start moving lower.
On the other hand, a Fed commitment to start tightening sooner rather than later could be very positive for the US dollar and negative for the yen. This could lead to an upside break from the USDJPY channel and potentially more gains until the 105.00 major psychological handle.
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