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).

Click to enlarge

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.