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The Dollar could be making a comeback as expectations of higher inflation rise in the U.S. That makes the recent rally in USD/JPY one to watch for both potential short-term and swing setups.

USD/JPY Short-term Uptrend

USD/JPY 1-Hour Forex Chart
USD/JPY 1-Hour Forex Chart

My good friend Big Pippin put up some nice chart analysis on USD/JPY earlier today, spotting a solid longer-term bullish setup on the Daily chart. This strong shift in direction had me checking out the lower timeframes for short-term setups in case the Dollar bounce may be short-lived.

So, on the one hour chart above of USD/JPY we can see the recent rally starting a little over a week ago, and a pretty strong move, likely sparked by rising inflation concerns. This concern is driving bond prices lower / longer-term bond yields higher, and potentially a little bit of fear in the equity markets.

We just got more data today from the U.S. fueling inflation concerns (U.S. producer prices post biggest gain since 2009), so it’s likely this theme is not going away any time soon, but USD/JPY seems to have found a top as we can see a double top pattern form on the chart above.

So, there’s a chance of a pullback in the short-term, and if you’re in the camp that the USD/JPY rally is just getting started, then watch out for bullish patterns to form starting from current levels down to the previous levels of interest and Fibonacci retracement area highlighted on the chart above.

If you’re a little more conservative, consider a scaling in strategy of nibbling from current levels down to the Fibs, or just waiting for a pullback all together.

Looking forward for the rest of February, we don’t have anything schedule on the forex calendar that would likely shift the market themes, so again, the odds are still in the bulls favor at the moment and it’s still worth considering going with the trend as it could still be your friend through the end of the month.

What do you guys think? Is USD/JPY moving higher or is this the top? 

Let me know in the comments below, and 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.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.