There was a rather lackluster market reaction following the BOJ's asexpected 25 bps rate hike with rather weak language.  This saw USD/JPY meet and exceed our 116.00 target. Actually, our target was met about an hour before the actual announcement was made.

From what I can gather from our the fundamentals, the talk was rather dovish as to discourage too much upward pressure on Japanese bond yields. Thus, the yen sold off, meaning the USD/JPY went higher and EUR/JPY went back above 147.00.

I'm looking for a soft dollar next week. So with EUR/JPY strong in a possible weak dollar environment, you might know the play by now; long EUR/USD.  EUR/USD just happens to be trading 15 points above our short target from earlier in the week. This is coming together nicely.

EUR/USD formed a nice 5-wave impulse move higher to the 1.2860 high. And since July 7, we have been chopping lower in a rather complex corrective fashion called a double zigzag. The (W) and (Y) legs of the correction are lining up to be equi-distant at the .618 retracement of entire 5-wave move up at 1.2620. So in other words, we're looking to take some long EUR/USD home for the weekend. Stops should be just under the 1.2600 and keep in mind the potential for weekend gaps. So please, position size accordingly. The target will be remain open.

Todd Gordon is a Technical Currency Strategist and Fund Trader with GAIN Capital Group.

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