The USD/JPY pair is looking north, having clocked last week well above the previous week's high of 111.76.
The anti-risk JPY fell on Thursday and Friday, as renewed hopes of US-China trade talks put a bid under the risk assets. Notably, the USD/JPY closed above 111.83 (Aug. 29 high) on Thursday, violating the lower highs pattern and rose to 112.17 on Friday - the highest level since July 20. More importantly. Friday's close of 112.05 strengthened the long-term bullish case, as seen in the chart below.
Weekly chart
Last week's candle closed well above the previous week's doji candle high of 111.76, signaling continuation of the rally from Aug. low of 109.77.
The bullish continuation pattern is backed by ascending (bullish) 5-week and 10-week moving averages (MAs) and widening yield differential - US-Japan 2Y spread hit record highs.
Further, it has put the focus back on the long-term bearish-to-bullish trend change, represented by the upside break of the trendline connecting the August 2015 high and December 2015 high.
All this indicates the pair is more likely to test the 200-week MA of 113.23 in the next week or two.
At press time, the spot is trading at 111.80, having clocked a low of 111.66 earlier today. The pullback from the Friday's high of 112.17 is likely associated with the escalating US-China trade tiff - US President Donald Trump announced a 10 percent tariff on imports worth $200 billion annually from China. More importantly, the tariff rate on the latest batch of goods will rise to 25 percent on January 1, 2019.
While the USD/JPY may remain under pressure during the day ahead if the global stock markets respond negatively to rising trade tension, the outlook remains bullish, as indicated by the weekly chart, as long as the spot is holding above Thursday's low of 111.17.
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