Potential trade idea: USD/JPY

This trade idea is certainly for the patient, but there are signs that the pair could test the 105.00 level over the next couple of months.

Source: Bloomberg

Taking a more short-term approach I feel we could see some better upside in GBP/USD after Mark Carney’s weekend comments around putting up interest rates when the Bank of England has confidence in future wage pressures.

I am also keeping a close eye on my August 1 short AUD/USD idea (from 0.9310) this week, especially with Glenn Stevens delivering his semi-annual testimony on Wednesday.

One of the two key US data points this week will be Wednesday’s FOMC minutes, although the market is not expecting to see huge divergence from the official statement. The other big event will be Friday’s Jackson Hole Symposium, which goes on for a couple of days.

Federal Reserve Chairman Janet Yellen will deliver a key note speech entitled ‘re-evaluating Labor market dynamics’. Here she will expresses her own view, rather than that of the Fed collective. The labour market has clearly improved, but she could still use the forum to talk about slack (or the under-utilisation) in the labour market.

Looking at the performance in USD/JPY around the Jackson Hole Symposium, statistically there isn’t really much to go on, with the average move (since 2004) in USD/JPY being 0.2%, although the last two events have seen USD weakness.

The Fed minutes are generally seen as hawkish affairs though, as it gives the chance for the non-voters within the Fed to have their say. This brings a number of extremely hawkish members like Jeffery Lacker and James Bullard into the equation to have a greater say.

Technically there is strong resistance between 102.86 to 103.10, with the 2014 downtrend and 50% retracement of the sell-off from 105.44 to 100.75 in play. A break here would be very positive for the trade.

On the downside I feel traders could look to place a potential stop below the August 8 spike low.

Looking at the stochastic indicator on the daily chart, we’ve seen the oscillator bounce off the 50 level and it could be headed back towards the 80 line.

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