USD/JPY likely to correct higher on strong USD

Yen likely to correct lower and USD/JPY to push higher

  • After failing to clear resistance around 112.2 area, the USD/JPY has corrected lower riding on a weaker U.S. dollar and risk aversion.
  • The latest leg lower is credited to President Trump’s weekend tweet rebuking China over its attempt to renegotiate part of the agreement already reached upon as he announced that $200 billion worth of Chinese imports, which are currently subject to 10 percent tariffs would see the rate move up to 25 percent this Friday.
  • We at FxWirePro have long been suggesting that USD/JPY remains open to downside correction as long as the 112.2 resistance area holds.
  • The retail sentiment has been pointing to such direction.
  • However, earlier this week, as USD/JPY reached our target 109.6 area and beyond, we suggested that USD/JPY might be forming a base around 109-109.5 area.

As expected, USD/JPY corrected higher and tested resistance around 110 area. The exchange rate has once again declined 109.6 area.

However, our calculations suggest that USD/JPY is likely to correct higher towards 110.4 area. The main driving factor would be USD strength and fading risk aversion.