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​The Trump administration has not yet formally deployed the long-awaited latest $200 billion in tariffs against China, but a new Wall Street Journal report indicates that Japan might be next on the agenda.
Short term
Trade view / 12 December 2016 at 12:11 GMT

USDJPY is facing major upside barriers

Director / PIA-First Limited
United Kingdom
Price target:
Market price:
Background

Fundamental

The Federal Reserve will announce its latest interest rate decision on Wednesday with the statement, fresh economic projections and Fed Funds rate projections by individual FOMC members also released at the same time. There will also be a press conference from chair Janet Yellen. 

The FOMC is expected to raise the fed funds rate by 0.25% to a 0.50-0.75% range and this is already fully priced in. The statement and rate projections will be important for expectations and markets have priced in a further two rate increases by the end of 2017.

Fed governors are likely to be increasingly uneasy over the impact of dollar strength given the potentially negative impact on both the US economy and financing conditions in global markets. The Fed is also likely to shy away from a hawkish statement with fresh doubts surrounding the inflation outlook. 

With a rate hike fully priced in, there is little further scope for a short-term dollar advance. There are also likely to be important geopolitical concerns during the week with US president-elect Trump looking to take a much more antagonistic stance towards China which will risk a sharp deterioration in risk conditions.

Overall, USDJPY will face major barriers in extending gains with the potential for a sharp correction on a dovish Fed rate hike.

Technical

Price action has continued the correction higher over the past 5 weeks, following the bullish outside bar on the weekly chart and now challenges the 61.8% Fibonacci retracement level of the 2015-16 down move.
Daily chart shows evidence of stalling bullish momentum and a possible 5th wave completion, as RSI indicates extensive overbought conditions.

The hourly chart remains within a solid bullish channel although we expect better resistance at the 261.8% Fibonacci extension level (116.40). We look to sell into rallies close to this level.

Management and risk description

Parameters

Entry: Sell USDJPY between 116.00-116.40

Stop: A break above 118.00

Target: 113.50

Time horizon: 1 week


Hourly chart highlighting Bullish channel moving towards 261.8% Fibonacci extension
uj1
 
Daily chart showing 5th wave completion prospects and momentum turning negative
uj2
 
Weekly chart with 61.8% Fibonacci correction and 9 count exhaustion candle
Charts source: SaxoTraderGO

— Edited by Clare MacCarthy

Non-independent investment research disclaimer applies. Read more
3y
ValeriyKZ ValeriyKZ
Hello , Steve! what you mind about US30 and S&P 500 ?
3y
Steve O'Hare - First 4 Trading Steve O'Hare - First 4 Trading
Looking to buy dips in US equities. Dow Index (19700) - Prices have continued the bullish move higher and resulted in 5 consecutive positive days. The overnight rally has been sold into and there is scope for further bearish pressure going into this morning. The reaction lower is negative, however, we view this as an opportunity to set longs in line with the overall bullish move higher. Preferred trade is to buy on dips. Our profit targets will be 19850 and 19900.
S&P Index (2250) - Prices have continued the bullish move higher and resulted in 5 consecutive positive days. The overnight rally has been sold into and there is scope for further bearish pressure going into this morning. The bearish engulfing candle on the 4 hour chart is negative for sentiment. The reaction lower is negative, however, we view this as an opportunity to set longs in line with the overall bullish move higher. Preferred trade is to buy on dips. Our profit targets will be 2265 and 2270.

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