USD/JPY is turning increasingly bullish. In the 4H chart you can see that since price rallied from 101.09 to 103.08 in the second half of July after which we had a very deep retracement, one that went to 78.6%, around 101.50.
However, it has turned bullish since then, pushing back above the 200-, 100-, and 50-period simple moving averages (SMAs) in the 4H chart, and breaking above a falling trendline from the 103.09 high. The RSI has also since come back above 70, showing revival of bullish momentum.
Today’s USD/JPY rally was boosted by strong US housing data. However, as price nears the 103 handle, and the 4H RSI pushes into overbought territory we should expect some pullback in the intra-session time-frame. However, if price can hold north of 102.60, the bullish outlook remains.
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FOMC Minutes: One key fundamental risk factor that can affect the USD/JPY and the US Dollar in general will be the FOMC’s meeting minutes, to be released 2:00PM ET during the 8/20 US session. Traders are going to monitor Janet Yellen’s assessment and tone of the labor market which seems to have been improving. Yet there seems to be a lot of slack, and lack of wage growth. Where will the focus be? If the focus is on the concerns and uncertainty due to lack of wage growth and inflation in general (we just saw July’s inflation come in at 0.1% on the month, which won’t add to the 2.0% annual pace if inflation keeps being this soft).
Today’s rally in USD/JPY suggests the market has a bullish bias in anticipation of the upcoming FOMC minutes. It is quite possible that price comes up and stalls at 103, then continues to extend higher after the minutes. In this case, the next resistance could be in the 103.75-104 highs from March – April.
If price instead falls back, see if it can hold above 102.60, maybe given some elbow space to 102.50. The ability to stay north of 102.50 would continue to build the case for a bullish outlook, although we might have to wait for more positive data before the market can get another bullish attempt toward the 103.75-104 area.
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Note in the daily chart, that price has moved above the cluster of 200-, 100-, and 50-day SMAs, and the RSI has tagged 70 and held above 40, even above 50. This reflects a market that is turning bullish.
With the technical picture in the daily and 4H chart looking bullish ahead of the FOMC meeting, it would take a very dovish revelation tomorrow to push USD/JPY back below 102.50.
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