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Think the dollar will go back to its uptrend against the yen? I’ve found a technical forex setup for those who are looking for long dollar trades!

As you can see on the chart below, USD/JPY just bounced from the 111.00 – 112.00 levels, which isn’t surprising since it’s also near the 38.2% Fib retracement and 100 SMA on the daily time frame. Oh, and look at a divergence-y pattern on the chart!

A closer look also hints at a potential double bottom pattern with its “neckline” lining up with the 114.00 handle. If it “breaks” higher, then we might be looking at least a 200-pip move higher.

USD/JPY Daily Forex Chart
USD/JPY Daily Forex Chart

Fundamentally, I think that there’s enough fuel to fire up the dollar’s rally again.

Trump’s speech last night – though it didn’t give details – gave us hints on what to look forward to in terms of his fiscal policies. As Forex Gump has mentioned, we now know that he’s planning on boosting infrastructure spending by at least $1 trillion; aiming to cut corporate taxes enough to keep and add jobs for the Americans, and planning to cut taxes for the middle class.

And then there are the Fed’s voting members who have been sharing hawkish statements left and right. Dudley said that the case for a rate hike “has become a lot more compelling,” Harker keeps on repeating that “three rate hikes” is appropriate this year, and Williams hinted that a rate hike “is very much on the table” for their meeting in March. Heck, Yellen herself said that it’s “prudent” to adjust monetary policy over time!

Unless we see yuuuuge misses in Uncle Sam’s top-tier reports, it’s likely that the Fed is on track to make good on its estimate of executing three interest rate hikes this year. And, if Trump’s fiscal policy plans work out, then we might be seeing more optimism, if not significant boosts in economic growth.

Buying at current levels presents a pretty good reward-to-risk ratio especially if I put my profit target at around 118.50 and place my stops just below the Fib and 100 SMA support levels. Thing is, I’m not quite sure how long the current leg of Trumphoria and interest rate hike speculations can continue to push the dollar higher.

What do you think? Is the dollar ready for more gains? Or is it simply overbought these days? How would you play this if you’re the one buying the pair?

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See also:
Latest Weekly Trading Prep
My Q4 2016 Forex Trade Review and Reflections
HLHB System’s 2016 Performance Summary
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