USD/JPY floats in the Ichimoko Cloud

After a breathtaking rally over the last three and a half weeks, USD/JPY could finally pause for a well-earned rest.

Donald Trump’s victory already seems like a long time ago. The most notable beneficiary in the G10 space has off course been USD/JPY. With the reflation trade yield jump in bonds pushing out the USD vs. Yen basis differential. This has driven outflows of JPY into USD assets. Japan is highly unlikely to be labelled a “currency manipulator” by the new administration either given the Yen free floats. The jump higher in oil gave USD/JPY another shot in the arm last night as well with Yen being sold as Japan imports almost all its oil. Higher oil = weaker Yen.

We have though, come an awfully long way in a short space of time and a lot of the low hanging fruit has been priced in for now. Seeking some big picture inspiration, I had a look at the USD/JPY weekly chart today, and it popped up a few things worth sharing.

First of all the 100-week moving average come in at the weekly high thus far of around 114.80. Give or take a few pips that are also a previous weekly high in February 2016. The 100-week moving average was also around those levels at that time co-incidentally.

USD/JPY broke into the weekly Ichi moko cloud last week spurring another rally, and we are floating in the upper echelons of it as we speak.

Resistance is the top of the cloud at 115.62. A weekly close above here could suggest a move to the  121.70 area. Conversely, if this level holds then support is at the bottom of the cloud at 111.64 and then 106.90 the  200-week moving average.

The weekly RSI is moving towards overbought territory although we’re not there yet suggesting we may still have some life to the topside.

USD/JPY Weekly

With Non-Farm Payrolls tomorrow bound to provoke some excitement, it is worth watching this 115.62 level.  Depending on which side of it USD/JPY closes at, this may signal either another run to the topside or a precursor to a decent downside correction.

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