USDJPY: Dollar remains firm but below recent highs. Overbought dailies suggest caution by Jim Langlands

The mixed Japanese data kept the pressure on the Yen heading into the weekend and pointed to the need for ongoing QQE, although the thin US conditions ensured that the dollar could not find the legs to take out the recent 118.98 high. While the dailies remain very overbought and therefore warrant a degree of caution, the shorter term momentum seems to point higher so another test of the topside looks to be in store.Option related sellers would again protect 119.00, but beyond there would trigger stops and would head on towards 120.00, which again will see heavy option related sellers and will need to overcome major Fibo resistance at 120.05 (61.8% of 147.68/75.56) in order to make further gains. In the longer term the target of 124.13 (June 2007 high) remains valid, but will take time and would increase the pressure on the daily momentum indicators so I am not sure that we are ready for a run up here yet.

On the downside the initial support is seen at 118.50 and again at 118.30 (both minor). Below there would head towards 118.00, where the converging 100/200 HMAs will provide support. A break of 118.00 would open the door to a return to the daily tenkan at 117.60 and then to last weeks 117.23 low but right now this looks rather unlikely.

Overall, while wanting to trade from a strategically long position, I suspect that we may be in for a few more days of choppy trade, which could well last until Friday’s NFP figure but buying dips remains the play although I suspect there may be better levels to do so over the course of the week.

Economic data highlights will include:

M: Capital Spending, Nomura Mfg PMI

T:

W:

T:

F: Provisional Coincident/Economic Index.

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