It seems that the USD/JPY has completed its consolidation after its stunning 102-to-122 move from August 2014 to December last year. After its third attempt at 122 since last December, the dollar yen punched through the 122 resistance yesterday afternoon and kept going as stop buys for the dollar pair got triggered – hitting 123.33, a seven year high. Of course, a huge driver for the move yesterday was the strength of the greenback. With its ‘divergent policy’ play, the long USD/JPY trade was always a sporting candidate for a play on the firm dollar. This space has however been largely dominated by the short euro/dollar trade, especially since the ECB began its QE in March. Now that the USD/JPY has broken out of its 118-122 slumber, will we see the short dollar yen trade as the key proxy for a play on the US rate hike? Does this 118-122 foundation offer the pair another powerful leg up? Japanese exporters, while willing a weaker home currency, may not be thrilled over one that moves too much in short bursts. Planning and budgeting for operations accurately, even for the short term, can be a real headache. The BOJ too, whilst cheering this reflationary move, must also be concerned with the excess speed of any move. For traders, on the other hand, this could be pure delight as they have yet another compelling ‘story in play’, with an equally compelling set-up for a fast move. 123.2 looks like the new resistance here after yesterday’s solid move. The next level for a test may be 125.5 if this first level is broken with momentum. Conversely, should this drive up lose steam with the USD/JPY falling back below 122, we could see it supported at 120.8 and then again at April’s low of 118.5. Early trading on the Japan 225 seems tentative. This, despite the prospect of a rally with backing from the weaker yen. Still, the index looks good here after its break above the previous high of 20,275 with the trend up from October still very much intact. Key support remains the MA level of 19,800, with a firmer one at 19,000.
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