USD/JPY appears to be forming a head and shoulders forex trading pattern on its 4-hour time frame, indicating that a reversal from the uptrend is in the cards. Price is currently stalling around the formation’s neckline, which means that traders are still waiting for clearer clues on where this pair could be headed.
Earlier this month, the FOMC interest rate statement turned out to be bearish for the U.S. dollar, as policymakers were less hawkish than expected. Although they upgraded their growth and inflation forecasts, the Fed downgraded their growth forecast for the year. Yellen also declined to give a time frame from interest rate hikes, which disappointed many dollar bulls who were expecting to hear more upbeat remarks from the Fed head.
Forex Trading Reversal Signals
A strong forex trading break below the 102.00 major psychological level for USD/JPY could mean more losses for the pair though, as this support area lines up with the head and shoulders neckline. Take note that the forex trading pattern is roughly a hundred pips in height, which suggests that the resulting breakdown might be of the same size.
On the other hand, a bounce off the 102.00 support area could lead to forex trading rallies for USD/JPY. After all, the neckline also appears to be a short-term ascending trend line, which is indicative of an uptrend.
Recall that the BOJ also sounded a little less upbeat in their latest statements, with BOJ Governor Kuroda admitting that the recent sales tax hike implemented in April has resulted to economic fluctuations. Later on this week, Japan will release another set of spending and inflation data, which might shed more light on how the economy is dealing with the tax hike.
Weak figures could remind forex trading participants that the BOJ is still ready to ease if necessary, triggering a possible USD/JPY bounce. Strong data, on the other hand, could reaffirm yen strength.
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