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USD/JPY went into full bull mode starting last week, which eventually lead to a break above a long consolidation range.

Is this breakout legit and will USD/JPY be able to get past the next resistance area just ahead?

USD/JPY Consolidation Breakout?

USD/JPY 4-Hour Forex Chart
USD/JPY 4-Hour Forex Chart

USD/JPY has been on quite a rally this past week, correlating with last week’s more hawkish-than-expected Federal Reserve monetary policy statement. While we didn’t get an exact taper start date at the meeting, there was more consensus that tapering should happen soon and that rate hikes may happen in 2022 vs. the 2023 expectations we saw at the June meeting. 

This seems to have lit U.S. Treasury yields on fire, which is being attributed to USD/JPY’s push higher as well as U.S. bonds become relatively more attractive. The widely followed U.S. Treasury 10-year yield broke above recent consolidation between 1.25% – 1.35%, now trading above 1.50% and is likely on its way to 2021 highs around 1.75% if the Fed continues to hint at tapering and rate hikes sooner than previously expected.

USD/JPY has rallied for five consecutive days, nearly testing the July 2nd high at 111.65. Is this rally about to run out of steam? Or can the market break and make new 2021 highs?

For us, we think some short-term profit taking may hit the markets after a swift move, especially with the end of the month and quarter coming this week. But longer-term, this could turn into a new leg higher on the longer-term timeframes.

We’ll be watching for a pullback from current levels, and if we see a retest and bullish reversal patterns form around the top of the broken consolidation range (roughly 110.40 – 110.70), we’ll start to plan out a potential long position if the Fed tightening story continues to remain the dominant theme.

What do you guys think? Is this a short-term top on USD/JPY or are the bulls ready to break above the next resistance area? Will a dip be a buying opportunity? 

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.

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