Where to buy into USD/JPY?

USD/JPY has been on a strong run of late, rallying from ¥105.20 to ¥118.98 in just over a month.

Source: Bloomberg

Pullbacks have been shallow and traders have pounced on any sign of weakness. Still, with spot currently trading at ¥118.16, I feel the upside looks capped for now and indecision is currently being seen on the daily chart.

If we do see a further rally from here, I would be fading the move around the top Bollinger Band, which currently stands at ¥120.42. I am sceptical the pair can push higher, even though my longer-term bias is for a much stronger move higher.

As you can see, the 9-day RSI and stochastic oscillator are both are very much overbought and at extreme levels. So from a pure risk-to-reward standpoint, there are much greater risks of a short-term move lower. Given the news flow, which the media and IG research have detailed in some depth recently, it’s hard to see a move lower on anything other than profit taking.

Still, the question is at what level does one look to buy? My personal opinion is ¥117.63 looks like a good area to work bids into (the 38.2% retracement of the ¥115.45-to-¥118.98 move, which can be seen more clearly on the hourly chart). Stops could be placed at ¥116.30 (just under the 18 November low).

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