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USD/JPY is expected to trade with a bullish bias above 103.75. The pair stands firmly above its horizontal support at 103.75, which should limit the downside potential. At the same time, the 50-period moving average is heading upward, and maintains the bullish bias. Besides, the relative strength index is above its neutrality area at 50, and lacks downward momentum.
On Friday, U.S. stocks posted modest gains driven by financial shares. Better-than-expected earnings reported by JPMorgan, Citigroup and Wells Fargo, as well as solid economic data, which supported the case for a December rate increase, helped buoy the financial sector. The Dow Jones Industrial Average rose 39 points (+0.2%) to 18,138, the S&P 500 edged up less than 1 point to 2,132, and the Nasdaq Composite also added less than 1 point to 5,214.
On the economic data front, the U.S. Commerce Department reported that September retail sales increased 0.6% on month in September (as expected, vs. -0.2% in August). The Labor Department said producer-price index (PPI) was up 0.3% on month in September (vs. +0.2% expected, +0.0% in August). On the other hand, the University of Michigan released its October consumer sentiment index at 87.9 (vs. 91.8 expected, 91.2 in September), the lowest level since September 2015.
The U.S. dollar regained strength as robust September retail sales and PPI data reinforced expectations of the Federal Reserve moving toward a December rate increase. The currency help up well despite a subdued October University of Michigan consumer sentiment index.
The ICE U.S. Dollar Index gained 0.5% to 98.019 reclaiming all grounds lost on Thursday. The previous time the index closed above the 98.000 level was on March 2. It gained 2.7% in the past two weeks, the most since May 2015.
Therefore, as long as 103.75 is not broken, we expect a new rise to 104.65 at first, if breakout, open the path to further advance toward 105.00 as possible.
Trading Recommendation: The pair is trading above its pivot point. It is likely to trade in a wider range as long as it remains above its pivot point. Therefore, long positions are recommended with the first target at 104.65 and the second one at 105.00. In the alternative scenario, short positions are recommended with the first target at 103.30 if the price moves below its pivot points. A break of this target is likely to push the pair further downwards, and one may expect the second target at 102.80. The pivot point lies at 103.75.
Resistance levels: 104.65, 105.00, 105.45
Support levels: 103.30, 102.75, 102.40
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