USD/JPY Forecast: Super Hawkish Fed Could Avoid A Drop To 112.00

USD/JPY fails to take out the descending trend line hurdle in October, despite strong US data, record rally in stocks and JPY bearish developments in Japan.
Increased odds of a drop to 112.00, only super hawkish Fed could yield an upside break.
USD/JPY strengthened 1.02 percent in October; its second monthly gain. The currency pair clocked a high of 114.45, before trimming gains to close October at 113.62. The decline from 114.45 to 113.62 could be blamed on the failed upside breakout on the US 10-year treasury yield.

Monthly chart

• Bullish reversal confirmed - bullish engulfing (outside month candle of September and a bullish follow through in October). Still, the pair is struggling to break above the descending trend line hurdle.
• The 50-MA is sloping upwards.
• Higher lows pattern as represented by the rising trend line.
• Inverse head and shoulders pattern with neckline hurdle of 126.40.

View - Increased odds of a drop to 112.00-111.58 in the short-run

• Strong US data - As Kathy Lien writes, "there has been widespread improvements in the U.S. economy since the last Fed meeting and with the progress being made on tax reform and stocks hovering at or near record highs, there's plenty of reasons to justify a hike. Consumer spending and consumer confidence is up, average hourly earnings increased significantly in September, inflation increased with improvements seen in manufacturing and service sector activity."
• Tax reform talk
• Record highs in US stocks
• Fed resuming the balance sheet reduction program in October

• Abenomics prevailed - Abe's landslide victory in the snap elections is Yen bearish as currency devaluation via monetary stimulus has been the cornerstone of Abe's policies to defeat deflation.
• The BOJ is widely seen as keeping the policy accommodate in order to stimulate the aggregate demand ahead of the planned tax hike in 2019.