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USD/JPY bulls are large and in charge, but will this week’s U.S. jobs data put that trend on shaky ground?

USD/JPY Uptrend Dip Ahead?

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

The last time we looked at USD/JPY in December, the pair was breaking out of consolidation to the upside, suggesting that the longer-term higher was about to resume. This was assumed given that the pop higher was likely a reaction to a very hawkish monetary policy statement from the Federal Reserve (reducing bond purchases $30B a month and hinted at three rate hikes in 2022).

Since then, the bulls took back the reins on USD/JPY, pushing the pair past the previous swing higher at 115.50 to testing levels we haven’t seen since 2016 above the 116.00 handle. The question now is whether or not this break will hold or whether upcoming events will turn the trend around?

Well, the catalyst of the week to watch is the latest U.S. employment data for December, and with expectations of a bounce from November’s disappointing numbers, its likely the U.S. dollar can hold its ground against the majors. And the argument for a jobs bounce was strengthened today with the employment component of ISM’s latest survey showing an eight-month high.

So, we remain bullish on USD/JPY, but with a solid run-up over the past month of over 370 pips (+3.36% gain and well over monthly ATR of around 200 pips), there’s a possibility some profit taking or news event selling may be in the cards for USD/JPY this week.

If that’s the case and U.S. jobs data remains strong, we’ll be watching for a dip to the area between the rising trendline, moving averages, and previous swing high. If we see bullish reversal candles there, we’ll consider a potential long position to play the monetary policy/economic recovery divergence between the U.S. and Japan.

What do you guys think? Is USD/JPY due for a dip or will we get a sour U.S. jobs number to but USD/JPY traders in reversal mode? 

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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