USD/JPY is posting a modest bounce after momentarily falling below 117.50.
Since the BOJ surprise QE announcement, I have been arguing to buy 150-pip dips in USD/JPY and the brief dip below 117.50 opened that window once again. There is also support from the Nov 21 lows stretching down to 117.38 for those looking for a low risk trade.
The four main risks I see at the moment:
1) It’s a holiday for the remainder of the week in the US and that will sap liquidity and make unusual moves more likely.
2) Treasury yields remain under pressure with US 10s down another 2 bps to a one-month low of 2.23%.
3) USD/JPY failed to make a fresh high after the most-recent 150 pip dip on Nov 20-21.
4) This is the big one — the US dollar has struggled to rally on good news like CPI and the Philly Fed. The flipside is that the pair has held up well on bad news.
USDJPY hourly chart
That said, from these levels with a stop at 117.38, you’re risking just over 20 pips. On the upside, I’d let it run until 120.00, or just before, so that’s +230 pips.
