The dollar-yen pair gained 0.6% on Tuesday, a five day winning streak that has taken it to the 116.00 level, for the first time since Jan. 6, 2017.
The US dollar's strength versus the Japanese yen comes on the heels of rising Treasury yields which followed the expectation of upcoming Federal reserve tightening via rate hikes. Given that rates are the USD's 'yield,' anticipated hikes mean the dollar's 'payout' will accelerate.
The market narrative says the first rate increase could come as early as March, with two additional boosts by the end of the year. Does that mean the upcoming events are now priced in and the USD/JPY has finished its rise? We don't think so.
The USD/JPY blew out an H&S top, forcing traders to reverse positions, providing the momentum for higher highs.
The weekly view provides additional information:
From this vantage point, the well-defined trend within the rising channel is visible.
The longer-term monthly view is even more informative:
In the chart above, it's clear the pair has just resolved a long-term range and is now headed higher.
Trading Strategies - Long Position Setup
Conservative traders should wait for the price to fall back and confirm the support of the rising channel bottom.
Moderate traders would wait for a buying dip.
Aggressive traders could enter a short contrarian position as the price nears the selling (dotted) line within the range. A concise trading plan is imperative. Here's an example for the basics:
Trade Sample – Aggressive Contrarian Short Position
- Entry: 116.25
- Stop-Loss: 116.50
- Risk: 25 pips
- Target: 115.00
- Reward: 125 pips
- Risk-Reward Ratio: 1:5
Author's Note: This trade presumes a temporary dip before the pair continues higher.