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Gains Momentum Poised for Potential Breakout


Regardless of the Federal Reserve’s upcoming interest rate decision, the substantial interest rate differential between the US dollar and the yen remains a significant driver for this market. 

  • The USD/JPY experienced a modest rally during Wednesday’s trading session, indicating sustained upward pressure.
  • The market is steadily approaching the ¥142.50 level, a previous swing high, suggesting an effort to accumulate enough momentum for a substantial move.
  • The overall market picture, marked by the recent breakout of a bullish flag pattern, indicates the potential for the USD/JPY pair to reach the ¥148 level or even higher. Additionally, a previously observed ascending triangle pattern also aligns with this bullish sentiment.

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An analysis of the chart reveals significant resistance at the ¥138 level, which, due to “market memory,” could provide substantial support as it was previously a strong resistance level. Interestingly, this level coincides with the bottom of the bullish flag pattern, further emphasizing its importance as potential support. Should the market break below this level, it would likely trigger a considerable amount of selling. It is worth noting that the presence of the 50-Day EMA in the vicinity adds further technical significance.

Overall, the market appears poised for further upside potential, making buying dips an attractive strategy. The longer-term perspective suggests the possibility of a more significant move, especially considering the potential target of ¥148 based on the bullish flag pattern. Furthermore, the Bank of Japan’s commitment to maintaining loose monetary policies aligns with this bullish outlook. Even if the Federal Reserve refrains from raising interest rates at the upcoming meeting, the substantial interest rate differential between the US dollar and the yen remains favorable, providing a strong driving force for this market.

In conclusion, The US dollar’s rally against the yen continues, with the market steadily approaching the t¥142.50 level. The breakout of the bullish flag pattern and the presence of an ascending triangle further reinforce the positive outlook. Notably, the ¥138 level holds significance as a resistance-turned-support level due to “market memory.” A substantial amount of selling could follow if this level fails to provide support. In the broader context, the longer-term perspective indicates further upside potential, supporting a strategy of buying dips. The commitment of the Bank of Japan to ultra-loose monetary policies adds further momentum to the trade. Regardless of the Federal Reserve’s upcoming interest rate decision, the substantial interest rate differential between the US dollar and the yen remains a significant driver for this market. Traders should remain attentive to potential buying opportunities and the ongoing bullish momentum in the USD/JPY pair.

Potential signal: I remain very bullish this pair. I will be adding to longs at the 142.65 level, about 20% of the original position. If you are not already long USD/JPY, then it’s an entry, with a stop at 141.25, and a target of 145.

USD/JPY

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