USD/JPY Forecast: 111.76 is the level to beat for the bulls

The USD/JPY created a classic doji candle last week, which is widely considered a sign of indecision in the marketplace.

Indeed, the USD/JPY market is trapped between the haven demand for JPY amid escalating trade tensions and rising Treasury yields and is awaiting a decisive move.  

That said, the bulls will likely feel emboldened if the pair ends this week above the previous week's doji candle high of 111.76. That would add credence to the bullish outside-week candle of mid-August and the defense of the long-term falling trendline support and open the doors to 113.25 (200-week moving average).

On the other hand, acceptance below 109.77 (August low) would confirm a bearish reversal and could yield a deeper drop to 107.86 (61.8% Fib R of March low/July high).

As of now, the bullish scenario appears more likely as Friday's solid US wage number has likely reinforced expectations of faster Fed rate hikes.

However, reports are doing the rounds that Trump administration is preparing grounds for an all-out trade war with China by slapping unilateral crowbar tariffs on more than $500 billion worth of Chinese goods. More importantly, China is likely to retaliate in kind. 

if the US-China trade war escalates, then the resulting risk aversion could push the pair below 109.77 (August low). 

Weekly chart