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