USDJPY – Consolidation or Bottom?

USDJPY – Consolidation or Bottom?

USDJPY – Consolidation or Bottom?

After slowly grinding lower throughout the week, USD/JPY finally rebounded on Friday. Unfortunately the recovery was shallow with the pair ending the week below 100.50. In the week ahead there’s not much in the way of market moving U.S. data which means we should see sideways to weaker price action in USD/JPY. The selling pressure in the dollar is strong and for sentiment to change, we need Yellen to say that a rate hike is coming and we need to another unambiguously strong non-farm payrolls report. Even then, there’s zero chance of a rate hike in September or November. December though is open for discussion especially since it is a meeting where the Fed releases its latest economic projections and Janet Yellen delivers a press conference. Unfortunately there’s still 4 months before the December meeting and there’s zero chance the Fed will raise rates in September or November. So in order for the dollar to bottom we need overwhelmingly positive data so until then dollar will continue to fall, consolidate for the next week or experience shallow bounces. There’s been evidence of the Bank of Japan checking rates on the 99 handle but they seem to be more worried about the pace of decline than the absolute level of the currency.

Technically the downtrend in USD/JPY is still very strong. 100 may be an important psychological support level, the main area of support is the June low of 99 (there’s also some support at 99.50). If the pair holds this level then a move back to 102 is possible. There’s still a chance of a bottom near current levels. Taking a look at a longer term monthly chart, if 99 is broken, then the next stop will be the 100-month SMA. 100.20, the area where USD/JPY is hovering at the end of the week is also a key Fibonacci retracement level of the 2011 to 2015 rally.

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