Fundamental overview:
USD/JPY is expected to consolidate with a bullish bias after hitting a near-seven-year high 112.98 this morning. Liquidity was thin in Asia as financial markets in Japan were shut for a public holiday. USD/JPY is underpinned by the weak yen sentiment after Bank of Japan on Friday unexpectedly announced it would expand its bond purchases to 80 trillion yens a year from the previous target range of 60 trillion yens to 70 trillion yens. The BOJ's surprise stimulus measures widened the gap between U.S. and Japan's monetary policies as the Federal Reserve on Wednesday said it would end its bond-buying program after October and remained on track to raise interest rates next year. USD/JPY is also supported by the positive USD sentiment (ICE spot dollar index last 86.91 versus 86.16 early Friday) as a jump in U.S. October ISM-Chicago PMI to one-year high of 66.2 in October from 60.5 in September and higher final University of Michigan October consumer sentiment index of 86.9 versus preliminary reading of 86.4 overshadowed a surprise 0.2% on-month drop in U.S. September personal spending (versus forecast +0.1%); higher U.S. Treasury yields (10-year at 2.335% versus 2.305% late Thursday), yen-funded carry trades amid positive investor risk appetite (VIX fear gauge eased 3.37% to 14.03, S&P closed up 1.17% at 2,018.05 Friday) on BOJ's unexpected stimulus measures and Japan Government Pension Investment Fund's plans to increase its allocation to domestic stocks from 12% to 25%. But the risk sentiment dented by the surprise drop in China's official manufacturing PMI to 50.8 in October from 51.1 in September (versus forecast for no change at 51.1). USD/JPY gains are also tempered by the buy-yen orders from Japan's exporters.
Technical comment:
Daily chart is positive-biased as MACD and stochastics are bullish, although the latter is in the overbought zone, five-day moving average is above 15-day MA and is advancing.
Trading recommendations:
The pair is trading above its pivot point. It is likely to trade in a higher range as far as it remains above its pivot point. As long as the price is keeping above its pivot point, a long position is recommended with the first target at 114.70 and the second target at 115.70. In an alternative scenario, if the price moves below its pivot points, short positions are recommended with the first target at 110.50. A break of this target would push the pair further downwards and one may expect the second target at 109.40. The pivot point is at 111.45.
Resistance levels:
114.70
115.70
116
Support levels:
110.50
109.45
109
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