USD/JPY – Triple Bottom?

USD/JPY – Triple Bottom?

USD/JPY – Triple Bottom?

On a technical basis, we see signs of a triple bottom in USD/JPY. The currency pair found support above 110.50 for the third time in 2 months and the long wicks on Thursday and Friday suggest decent support below current levels. 112 is the main near term resistance level for USD/JPY. If the currency pair manages to breach this level in a meaningful way, the next stop should be 113. A move above 113 would be needed for the pair to revert back into its former 112.25 to 114.50 trading range. 114 has a been a formidable barrier because it is where we have the 23.6% Fibonacci retracement of the 2011 to 2015 rally.

Fundamentally, we haven’t seen any signs of the Bank of Japan in the market since USD/JPY dipped to a low of 110.67 last week. The lack of verbal or physical intervention before and after the Federal Reserve meeting suggests that their new pain threshold could be 110.50. Janet Yellen’s dovish comments last week sent the dollar crashing and unless this week’s Fed speakers are hawkish investors may find very little reason to buy dollars. Unlike some other pairs, USD/JPY has the risk of BoJ intervention preventing a deeper slide but in order for the dollar to regain its dominance, the Federal Reserve would need to indicate that rates could still increase in June and while Yellen did say that every meeting including April remains a live one, the move in Fed fund futures reflect the skepticism of investors. U.S. data or Fed speak will be needed to turn sentiment around and at minimum, this week’s economic reports won’t do the trick because housing and durable goods reports are not game changers for the Fed. Friday’s GDP report is a third revision that by now is extremely dated. So in a nutshell, while we may have seen a triple bottom in USD/JPY, there’s still a risk of another dip to 111.25.

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