Trade Idea: Quick Pullback on USD/JPY

Diverging monetary policy biases from the Fed and the BOJ could be enough to keep USD/JPY on an uptrend so I’m waiting to hop in on a short-term correction. In last week’s Jackson Hole Symposium, Fed Chairperson Yellen suggested that a rate hike could still be in order before the end of the year while BOJ Governor Kuroda admitted that the Japanese economy needs more stimulus.

USD/JPY Trade Idea

The pair surged nearly 250 pips last Friday before profit-taking took place, giving me a chance to catch a quick pullback. I pulled up the Fibs on the latest swing high and low, which indicated a potential correction area until the 50% to 61.8% Fib levels.

To top it off, I’m seeing a bullish divergence as price made higher lows while stochastic had lower lows. The oscillator has yet to make it out of the oversold region before indicating a return in buying pressure so I’ll be patient in waiting for a better entry price.

USD/JPY 1-hour Forex Chart

USD/JPY 1-hour Forex Chart

Besides, we’ve still got a few U.S. reports on deck for the week and dollar bulls would like to see impressive results in order to confirm that the Fed would stay on track towards tightening. So far, the core PCE price index and personal spending reports have simply met expectations so market watchers would likely turn to the upcoming jobs data for a stronger catalyst.

Meanwhile, data from Japan has been upbeat so far as household spending, retail sales, and the unemployment rate have all come in the green. Still, this doesn’t change the fact that inflation has been particularly weak in the Japanese economy, which suggests that the BOJ could maintain its easing bias.

I’m planning on going long around 101.25 with a stop below the swing low or 100.00 handle and a higher target close to the 104.00 mark. I haven’t set my orders yet but I’ll be sure to make a blog update when I do. Stay tuned!

As always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

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