Submitted by Nic Lenoir of ICAP
As you by now well know I am fundamentally bullish USDJPY for the long term. Leaving aside the fundamental economic problems of the Japanese economy, the BOJ has recently pretty much committed to pursue QE until they can somehow manufacture inflation, the debt to GDP ratio is 200% and rates are at 0% so comparatively the USD has nothing to be ashamed of, and the Fed is starting to pull out liquidity from the market. Therefore if risk doesn't collapse (as it would trigger the usual flight to quality in JPY / carry trade covering) the elements in terms of monetary policy and rates cycle are also in place to support economic fundamentals.
Technically, we see the market shows bullish divergence as the RSI has bounced on the long term support and is not validating the recent lows in price. On the daily chart we see we have challenged several times 2 key resistance trendlines and we appear ready for a break-out. We then zoom in on the hourly and see that we are back on the 89 support, and there is strong divergence in momentum indicators. A break at 89.50 would trigger an inverted H&S which is the short-term signal we need to confirm the next leg up is upon us. Alignment of big picture fundamentals and technicals give us a strong view on the strade, but we will wait for the validation at 89.50 as risk aversion and flight to quality have so far been the killer for this otherwise very sound macro trade, and we need momentum on our side.
Good luck trading,