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Greenback strengthens on speculation of surprise Fed hike

us dollarFor the past few weeks, a series of mixed US economic data has kept the Greenback range bound against the top five traded currencies. The reluctance of the traders to expose themselves to large positions, ahead of the monetary policy meetings of the US Fed and Bank of Japan scheduled this week, also contributed to the range bound movement.

However, there are signs which indicate that the US Fed may surprise the market with a rate hike next week. Furthermore, the reports from Japan, detailed below, indicate that the policy makers would announce further easing measures. The following arguments encouraged us to have a bullish view on the USD/JPY pair.

The Boston Fed President Eric Rosengren, who is usually considered as a supporter of dovish moves, has come forward for the first time to support a rate hike. According to Rosengren, too much delay in raising the benchmark rates would finally force the Fed to raise the rates frequently in order to avoid overheating (soft landing) of the economy.

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Commenting on the views, Lou Crandall, chief economist at Wrightson ICAP, stated that Rosengren has successfully turned the tables against the dovish argument. Rosengren is squarely concerned about the commercial real estate sector. It should be remembered that the 1980 economic crash in the UK was triggered by the collapse of the commercial real estate sector.

The CEO of DoubleLine Capital, Jeffrey Gundlach, stated that the determination of the Federal Reserve officials to show that they are not governed by the market opinion will also result in a rate hike in the coming week. DoubleLine Capital is a $100 billion fund based out of Los Angeles.

In Japan, seven of the nine BoJ’s board officials are in favour of further monetary easing. They have a difference of opinion only in the manner in which it should be taken forward. The market expects a large scale easing announcement when the BoJ officials meet later this week. Thus, under the present circumstances, it would be better to stay long in the USD/JPY counter.

The USD/JPY pair is currently moving within the ascending channel, as indicated by the chart. The momentum is increasing as well. The pair has also formed a double bottom at 100.34. Thus, an uptrend can be expected in the USD/JPY pair.

USD/JPY Pair: September 19th 2016

USD/JPY Pair: September 19th 2016

Taking a long position in the currency pair near 102 levels would enable a trader to capitalize on the probable Greenback’s rise against the Yen. Considering the important monetary meetings scheduled next week, a stop loss order should be compulsorily placed below 100.20. If the currency pair rises as expected, then the long position can be sold near 105.50.

Investing in a one touch call option would allow a binary trader to gain from the USD/JPY pair’s uptrend. A strike price of 104 or lower would support the cause of the trader. Finally, a trader should allow at least four week expiry time for the discussed call option trade.


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