- Trade idea: Buy USDJPY 123.70, target 125.75, stop loss 122.75
USD looks to be in the early stages of an uptrend approaching potential Fed kick-off in September. Chairman Yellen has stopped short of explicit signals on tightening and probably will not do so at the FOMC meeting this week. However, in the run-up to the meeting expectations around earlier tightening may continue to cement themselves and USD will be sensitive to additional improvement in data flow.
Mid 124s have recently provided resistance on USDJPY. This suggests the FX market may be cautious following the warning on the yen decline from Japanese authorities such as BoJ Governor Kuroda early last month. However, we believe Kuroda won’t repeat concerns on JPY weakness this time and disappointment on the lack of pushback from Japanese authorities could fuel a rally.