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Japanese equities have managed to keep extending gains despite some yen consolidation; while there isn’t much out of Japan this week, I feel moves in USD/JPY could play a key role. On the USD side of the equation, traders will be eyeing Janet Yellen’s testimony very closely. While she is more likely to mirror the minutes from last week, I feel she’ll deliver a mostly balanced testimony. Any mention of moving towards policy normalisation is likely to be construed as a hawkish sign. This would see USD/JPY squeeze a bit higher and would also have a bearing on the Nikkei.
As a result, I feel buying the dips in the Nikkei, particularly around 18,100 could be traders’ strategy this week. Stops would have to be placed below 18,000 and I will update the parameters once the trade is triggered.