Incremental Gains as Storm of Volatility Lies Ahead

The USD/JPY has produced almost seemingly polite incremental gains the past two days of trading and is approaching intriguing short term resistance.

Speculators watching the USD/JPY may perceive the USD/JPY has demonstrated rather tranquil trading the past two days after it has climbed off Friday’s lows. As of this writing the USD/JPY currency pair is near the 136.900 region with bursts being generated as traders seemingly watch an incremental climb take place and the 137.000 ratio flirted upon.

Traders need to be Careful, Because Ahead Lies Shadows that could turn Violent

Before traders are lulled into a delicate calm however, they should be completely aware that rather turbulent results are likely ahead for the USD/JPY later today, Thursday and Friday.  Most speculators are aware of the U.S Fed’s coming interest rate hike which most financial houses assume will see an additional 0.75% tagged onto the existing number, bringing the key lending rate to 2.50% if all goes according to plans. And yes, this number has been largely digested into the institutional market and will leave retail traders at the mercy of fluctuations which are certain to develop upon the news as it is announced.

• While the interest rate hike is important, tomorrow’s Advance GDP numbers could stir the Forex markets more, including the USD/JPY.
• Friday’s consumer inflation report from the U.S could also affect the USD/JPY.

The USD/JPY remains within the upper tier of its long term range. The currency pair has come off highs seen last week, but it continues to linger near demonstrative highs not seen since 1998. The ability of the USD/JPY to sustain these upper realms and not suffer a devastating reversal lower likely indicates financial houses believe the Forex pair is adequately priced for the moment. The U.S Fed’s interest rate outlook is being interpreted, but coming data via GDP growth data on Thursday and Fridays consumer inflation results will create a dynamic trading environment for the USD/JPY.

If the USD/JPY breaks above the USD/JPY near term and sustains its value we may see more Buying

While traders may be hesitant to bet on additional moves higher, if the USD/JPY goes above the 137.000 mark and sustains value, this could mean additional long positions may be ignited.  Trading conditions will get fast in the next handful of hours. A move testing the 138.000 is not out of the question, nor sharp reversals which test lower support causing choppy conditions all within a rather close timeframe that makes unsuspecting speculators nervous.

Traders need to use all of their risk management tools. If they do not know how to use them, it might be best to watch from the sidelines. Financial houses are not likely to be surprised by the Fed’s interest rate hike tonight. What scares them is the outlook of the U.S central bank. Data that will be delivered on Thursday and Friday could cause fireworks if there are shock results and change Fed outlook.

USD/JPY Short-Term Outlook

Current Resistance: 136.990

Current Support: 136.710

High Target: 137.780

Low Target: 136.230

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