Important close for USD/JPY as bullish signals emerge

Friday’s close looms as particularly important for USD/JPY with a break back above the Jan 2023 uptrend setting the platform for potential further upside next week. As things stand, another leg higher will fulfill the criteria to meet a morning star pattern on the weekly timeframe, adding to the case for setting longs with bearish momentum also starting to ebb.

A close around these levels would create a decent bullish setup, allowing for traders to buy the break with a stop below the former trendline for protection. As for topside targets, 150.90 and 151.95 loom as viable options.

From a fundamental perspective, USD/JPY has a rolling daily correlation with US two-year bond yields of 0.97 over the past month, implying the two variables are basically moving in lockstep. With little US data on the calendar next week to shift sentiment on the economy, that provides room for recent moves to extend further in the days ahead.

The biggest risk to the setup would be a major escalation in tensions in the Middle East or unlikely extreme dovish shift from Fed policymakers at the Jackson Hole economic symposium next week.
DS
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