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USD/JPY: Nears key support

USD/JPY Daily Chart

The US Dollar Index continues to feel the pain, but relief may soon be in sight. According to the Daily Sentiment Index, the Dollar is at an extreme with only 5% of participants bullish. The Greenback's oversold condition is evident against its major counterparts when looking at most daily indicators and is now approaching a net $20 billion short position among large speculators (CFTC). More importantly, risk aversion looks like it may be rearing its ugly head again, as seen in recent activity in credit-default swaps, the VIX and bond price-action. While this may not bode well for most traders, the "risk-off" trade tends to benefit the DXY. And with Japan's recent commitment to weaken the Yen, the USD/JPY is expected to remain well-bid ahead of the 83 handle. Since intervening, the trade-weighted Yen has slowly grinded higher, doubling the amount of time it took to fall from recent highs. As such, a higher low for the USD/JPY is sought near the intersection of a key Fibonacci retracement and a former trendline at 83.50. Meanwhile, the big picture downtrend remains firmly intact while trading below 85.87, the 25% retracement of the entire move off the 2010 high.

STRATEGY: BUY USD/JPY at 83.50, risking 82.70, targeting 85.15

 

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