USD/JPY Stalling after the FOMC-Rally
The USD/JPY rallied after the FOMC meeting last week, continuing an unstoppable uptrend that has brought the pair to 6-year highs. After finding resistance at 109.45 at the end of last week, the pair has been consolidating.
Price top interpretation:
One interpretation of this week’s price action so far is that we have a price top – some kind of head and shoulders, or just a triangle top – refer to the 1H chart below. Price broke below some local lows and support pivots as well as the 50- and 100-hour simple moving averages (SMAs). The 1H RSI fell below 40 showing loss of bullish momentum and fell below 30, showing early bearish momentum.
(click to enlarge)
Larger Consolidation Interpretation:
Another interpretation is that while we is that even though its true we have some small price tops, usd-yen is really developing a larger consolidation pattern, perhaps a flag pattern. As price bounces from 108.25, it does look like a flag pattern might be forming.
More Consolidation Scenario: The 109.00 level and the flag pattern resistance line will be important. Failure to break above these resistance factors should keep USD/JPY in consolidation, with downside risk toward the 108.00 handle. Note that the 50-period SMA resides at 108.00 at the moment.
If the consolidation extends even lower, watch for buyers in the 107-107.40 area, a previous consolidation heading into the FOMC meeting. A break below 107.00 might imply that the 109.45 high is here to stay for a while because it would have broken the “base” behind the FOMC-attack.
We should also monitor the 4H RSI. It is bullish and holding above 50. Now, if it falls below 40, USD/JPY would have lost the bullish momentum, and likely to have shifted from a bullish to a medium-term consolidation mode.
(click to enlarge)
Bullish Scenario: A break above the flag pattern should open up 109.45, continuing a prevailing uptrend that has upside towards the 110 handle.
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