USD/JPY Coiling with a Slight Bullish Bias post FOMC Reaction

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USD/JPY Coiling with a Slight Bullish Bias post FOMC Reaction

The USD/JPY has been consolidating ahead of this week’s FOMC meeting, and is remaining in this range after the event risk.

USD/JPY 4H Chart 1/29
usdjpy 4h chart 1/29
(click to enlarge)

Consolidation: The 4H chart shows that it has been consolidating roughly between 117.20 and 118.85. The support area between 117.20 and 117.40 has been tested 5 times and each time, we saw a relatively sharp reaction. The resistance area from 118.85 to 118.65 has been tested 3 times with strong rejections as well.

At the x-roads: The consolidation is at the crossroads because price has broken above a falling trendline but has stalled right after, and is now trading within the cluster of moving averages. Staying below the 200-period SMA gives USD/JPY a slight bearish bias in the 4H chart. However, the RSI has almost tagged 70 and has held above 40, which shows a bit of a bullish momentum bias.

USD Maintains Strength: Now after a slightly hawkish FOMC statement, the USD/JPY actually fell towards the 117.20-40 support area. However, this was more of a Japanese yen resilience story than a failed USD-strength story. In fact, we saw the USD gain across the board. If USD/JPY fell below 117.20, it would have a failed USD-push story, but so far with bids here keeping USD/JPY afloat the pressure returns to the upside.

USD/JPY Daily Chart 1/29
usdjpy daily chart 1/28
(click to enlarge)

Bullish Scenario: If price can clear 118.00 during the 1/29 Asian-European session, it should be poised to test the 118.85 area. A break above that trip some stops and push USD/JPY to 120, where price will be challenged by a triangle resistance. With the FOMC still on track to raise rates by mid-2015, there is a good chance USD/JPY would then break above 120 and expose the 121.70 high on the year.

Bearish Scenario: However, let’s say price breaks below 117, USD/JPY would be pressured towards the triangle support in the 115.65-116 area.

Slight Bullish Bias: Now, we can say that the mode in the 4H chart is neutral while the mode in the daily chart is bullish-neutral. Therefore, there is a slight overall bullish bias after the market showed support again at 117.20 today. Let’s look for the 118.85 high to be tested next.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.