USDJPY suffered a sharp selloff after the BOJ and FOMC policy decisions. Price is now moving close to the bottom of its descending triangle pattern visible on the 4-hour time frame. Another bounce off the 100.00 major psychological mark could lead to a climb back to the triangle resistance at 102.00.
On the other hand, a break lower could spur a 700-pip drop, which is roughly the same height as the chart formation. Similarly, a break past the resistance could lead to a 700-pip rally. The 100 SMA is above the 200 SMA for now so the path of least resistance is to the upside and the support might still hold. In addition, stochastic is already in the oversold area so sellers are feeling exhausted. Buyers could take over around the 100.00 level, triggering a bounce.
The FOMC decided to keep interest rates on hold at <0.50% but this came at the dissent of three policymakers (George, Rosengren, and Mester), reflecting a tilt to a more hawkish stance. Policymakers acknowledged that the case for a rate hike has strengthened and that they would look closely at upcoming data before deciding when to tighten.
In her press conference, Yellen also emphasized that the economy has been improving and that they could stay on track towards hiking before the end of the year if data continues on this trajectory. This could keep market watchers on guard for a likely hike in November or December, which might be enough to keep the dollar supported in the coming weeks.
Meanwhile, the BOJ announced a change in its policy towards targeting the yield curve. In their comprehensive assessment, Japanese policymakers acknowledged the persistent inflation drags and added that they will need to implement stronger efforts to boost price levels and expectations. With that, the yen could remain under pressure once more details of these measures are discussed and implemented.
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