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Forex: USD/JPY tests 102.00 as next milestone; ready for more?

FXstreet.com (San Francisco) - Despite popped to 102.14 in the early European session and testing the 102.05 again after the US retail sales data, the USD/JPY was trading in a quiet, constructive and safe consolidation phase between 101.55 and 101.95 on Monday. The USD/JPY is currently at 101.80, almost flat on the day.

As for the short term, the USD/JPY is trading slightly bullish according to the FXstreet.com trend index. Indicators such as CCI and Momentum are pointing to the north while the MACD is neutral and the Stochastic is Bullish. However, "in the 4 hours chart indicators resume the upside despite in overbought territory, giving not much hope on a downward correction for today," points the FXstreet.com Chief analyst Valeria Bednarik. "103.60 is still the main bullish target for the pair, with a break above this last favoring a continuation towards 105.00 price zone."

Is the USD&JPY ready for more?

Pushing the USD/JPY above the 100.00 level was the first Shinzō Abe milestone and according to the UBS, the short-term risk in the USD/JPY is a spike. "Given the decisive break above the psychological 100 level, we see upside risk of USDJPY testing higher levels in the short term", says the UBS analyst team. "However, we still don't see any fundamentals change to support a clear move higher and therefore would like to stick to our current medium term forecast range of 95-100 at this moment".

However, "a higher USDJPY range of 100-110 would require fundamental changes such as further easing by the BoJ, aggressive purchasing of foreign securities by Japan's investors for the portfolio rebalancing, or the Fed explicitly signalling to slow its pace of QE program", UBS adds. "At this stage, we do not expect any of these to occur in the coming months".

Among these lines, the 100.00 break "encouraged further yen selling," pointed Lee Hardman, Currency Analyst at BTMU in a recent report. "Yen weakness appears likely to extend further in the near-term with little technical resistance for USD/JPY until around the 105.00 to 105.50 area which should encourage speculative selling”, added Hardman.

So, downward corrections could happen, buy be wary of selling the pair pretending to catch a top: the bullish trend is here to stay. For the current week, Valeria Bednarik comments that the "key support will come around 99.70 former highs, and corrections towards that level are possible, but unlikely."

Finally, "a breach higher than 102.00 will signal an upward continuation towards 103.60 area, next big midterm resistance, ahead of 105.00 area," continues Bednarik. "Once above this last, there’s scope for an upward continuation towards 110.00, August 2008 highs."

"The sky is the limit," she concludes.

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