USD/JPY: Bullishly aligned but looking for a discount to get long; Daily Ichimoku Cloud bullish criteria not quite met

Currently, USD/JPY is trading at 111.96, up from a session low of 111.75, capped at a high of 111.98. The risk mood is positive, keeping the yen on the backfoot, but weekend press reported President Donald Trump's opinion that the  dollar is too strong,  once again citing Federal Reserve Chairman Jerome Powell as someone who “likes raising interest rates.”

“I want a strong dollar but I want a dollar that does great for our country, not a dollar that’s so strong that it makes it prohibitive for us to do business with other nations and take their business,”

Trump said on Saturday.

• WSJ report: U.S. / China "agreement is taking shape"

In other news, the WSJ signalled a trade deal in the making between China and the US. Coupled with a beat in the Caixin manufacturing (albeit still in contraction territory) along with a rosy US GDP print, investors were enthused on Friday and US stocks rallied, helping USD/JPY along towards the 112 handle. 

Recent US date not so rosy

However, that GDP print has failed to capture some of the more recent data of late, and Friday's releases offered up yet further disappointments with February’s ISM manufacturing data hitting the screens weaker than expected, falling to 54.2 (from 56.6 in the month prior). 

University of Michigan consumer sentiment fell slightly in February (to 93.8 from 95.5 in the month prior). 1-yr inflation expectations were slightly higher (at 2.6% from 2.5%) whilst 5-10 year inflation expectations remained at 2.3%. Lastly, the PCE inflation matched expectations (at 1.7% y/y) with core inflation at 1.9% y/y. "That said, personal income growth disappointed (falling 0.1% m/m) whilst spending was also weaker, down 0.5% m/m," analysts at ANZ Bank explained. 

USD/JPY levels

From a technical point of view, the daily chart shows that the positive momentum is set to continue, according to Valeria Bednarik, the Chief Analyst at FXStreet:

"The pair settled above its 100 and 200 DMA for the first time this year, with both converging around  111.30/40. Technical indicators in the mentioned chart hold near their Friday highs, with the Momentum consolidating and the RSI advancing, currently at 67."

"In the 4 hours chart, the risk remains skewed to the upside, as technical indicators barely corrected extreme overbought conditions,  while the price settled well above bullish moving averages."

"The pair's next resistance comes at the 112.20 price zone, where it has several daily lows from last November and December, before finally breaking lower. Gains beyond the level should keep the pair in the winning side."

Prospects for a discounted long entry until Daily Ichimoku Cloud's Lagging Span signals a long entry

However, with stochastics, MACD and RSI across multiple time frames leaning bearish and as the dollar remains below the H&S neckline at 96.65, the pair may struggle to attract fresh bids at this juncture which could provide a discount to bulls looking to enter long encouraged by some of the Ichimoku Cloud bullish conditions and price holding above the 21-D SMA for the entire stretch of Feb's business. However, while far from price, the daily Lagging Span is the last of the criteria to be met as it is yet to cross above the cloud - As Valeria Bednarik argues, 112.20 is indeed a key level - It is where the Lagging Span will likely need to cross for a new long entry point. It is worth noting that USD/JPY is in an ascending channel and has met resistance at the top of the channel as well as the resistance of the daily Bollinger bands - A pullback could target the 100-D SMA and confluence of S1 located around 111.32/50 respectively. A firmer level of support could come from the Tenken Sen at 111.21.