Day 2: our USD/JPY trade

I suggested yesterday that traders could look at selling rallies in USD/JPY, however this strategy has proved incorrect thus far.

While USD/JPY is oversold given the current levels seen on the daily stochastics, it’s hard to be long the pair right now due to the current downtrend at hand. I continue to think that the pair will trade lower from here, especially as the 200-day moving average is under threat right now at 96.63. A daily close below this moving average could signal the pair is ready to make an assault on the August 8 low of 95.81.

Perhaps the key trigger to push the pair higher could be the FOMC minutes (due Thursday 05:00), as there is a chance these minutes could show the decision to taper was actually pretty close and therefore provoke a bout of short selling.

I feel given the current price action, sell limits could be brought down to 97.50, although this is still a touch optimistic. The US debt debate is still not getting any closer, and judging by the narrative and body language it doesn’t look like an agreement will be seen this week. This should keen USD rallies contained.

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