USD/JPY Forecast: Bullish reversal confirmed, another higher bottom in place, but…

The Dollar-Yen pair found takers below 110.98 (61.8% Fib R of 108.80-114.49) on Tuesday and rallied to a high of 111.96 before closing the day at 111.87. The gains have been extended to four-day high of 112.09 in the Asian session today. 

BOJ new members support large scale easing

The exit of the dissenters - Kuichi and Sato and the addition of new members - Sakurai and Kataoka - who support large scale easing is good news for the Yen bears. “Before any exit strategy, we must think about how to bring inflation to the 2 percent price target in a stable manner,” Goushi Kataoka, 44, an economist and a known reflationist, said in his inaugural press conference on Tuesday. Meanwhile, Hitoshi Suzuki, said it’s “somewhat risky” to start discussing an exit when price growth is far from the goal.

US-Japan 10-year yield spread rises to 13-day high

The spread rose to a 13-day high of 2.256 on Tuesday; its highest level since July 13.  The spread has left a higher bottom and is back above the falling channel hurdle, which indicates scope for further improvement in the spread in favor of the US dollar. 

Technicals     

Resistance

• 112.10 (38.2% Fib R of 114.49-110.62)
• 112.32 (38.2% Fib R of 108.80-114.49)
• 112.73 (4-hr 100-MA)
• 113.00 (psychological level)

Support

• 111.66 (50-DMA) - 111.65 (50% Fib R of 108.80-114.49) - 111.64 (100-DMA)
• 110.98 (61.8% Fib R of 108.80-114.49)
• 110.62 (July 24 low)
• 110.15 (76.4% Fib R of 108.80-114.49)

Daily chart 

Bullish reversal confirmation

Monday’s long legged Doji candle and a bullish follow through on Tuesday indicates the sell-off from the high of 114.49 has ended at 110.62 levels. The fact that the bullish reversal happened at the 61.8% Fib level adds to the bullish feel good. 

Higher low

The spot has left another higher low at 110.62. The previous two cyclical lows are 108.80 and 108.13. This is a bullish sign…

However, on a larger scheme of things,

It is essential that the spot continues to move higher from here and establishes a higher high… above 114.49. That would add credence to the higher low pattern and open doors for 118.66 (Trump rally high) and 120.00 levels. 

Intraday outlook

The spot failed in Asia to take out 112.10 (38.2% Fib R of 114.49-110.62) and is also struggling to hold above the 4-hr 200-MA level of 111.96. We also have a bearish 50-MA and 200-MA crossover. This, coupled with a failure at the downward sloping 10-DMA suggests the spot is likely to trade in the sideways to bearish manner. 

Only a daily close below 110.62 would revive the bearish move.