• USD/JPY bulls are on the verge of a fresh cycle high. 
  • There are multiple bullish candle formations on the daily chart.

USD/JPY rallied again on Monday, showing the bullish intentions for the price following a very strong move last Wednesday which left a three-line bullish strike on the daily charts. The price is on the verge of printing a fresh cycle high after the greenback surged to a 16-month high against a basket of major peers. The dollar index DXY hit 95.50 on Monday, its highest since July 2020. 

At the time of writing, USD/JPY is trading 0.24% higher into the close of the North American session. The pair rallied from a low of 113.75 and reached as high as 114.13, some 50 pips below the 20 October and 2021 cycle highs. Global growth and inflation concerns are underpinning the greenback, risks that are in their infancy. 

All aboard the US dollar train

Gains in the heavily euro-weighted dollar index followed the European Central Bank President Christine Lagarde continuing to push back on market bets for tighter policy. Meanwhile, for the week ahead, investors will look to US Retail Sales data on Tuesday for clues as to where the dollar may be headed next. The data are to come in at 1.1% for last month, according to a Reuters poll.

Another driver for the DXY will be the UK's economic diary this week where employment, inflation and retail sales numbers are expected to provide clues about whether the Bank of England will raise rates in December. However, as a fresh wave of covid swells of Europe, bets of a rate hike at the BoE are starting to dwindle following last month's hawkish hold. This could also feed into US dollar strength and thus tip the yen over the edge. 

USD/JPY technical analysis

On the daily time frame, we have multiple confluences of bullish signals. 1. Three line strike which is a reversal pattern. This is a bullish engulfing candle that was printed on November 10. 2. Inverse head and shoulders which is a bullish formation as well. 3. And lastly, Monday's bullish engulfing candle, (albeit with 10 mins left to go until the daily close). 

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