USDJPY Shallow Correction Wave Pattern – Sept 16, 2014

USDJPY Shallow Correction Wave Pattern - Sept 16, 2014

USDJPY Shallow Correction Wave Pattern - Sept 16, 2014

USDJPY has been on a strong uptrend but the move may already been overdone, with a market correction due. Price has stalled around the 107.35 levels and has been unable to break to new highs for this week, indicating that traders are booking profits ahead of key events.

The FOMC interest rates statement could be a big catalyst for this setup, which might see a downside break and deeper correction if the event turns out bearish for the dollar. This could trigger a sharp drop to the 106.00 levels, which are close to the longer-term 200 simple moving average.

USDJPY Trade Levels

However, stochastic and MACD are both indicating a return of buyers, which might lead to a shallow retracement at the pair’s current levels. USDJPY is finding a floor at the short-term 100 simple moving average, which has held as a dynamic support area for price retracements so far.

A rally from the 100 SMA could lead to a strong upside break past the 107.50 area, which might see USDJPY up to the 110.00 levels eventually. This outcome could be sparked by a hawkish FOMC statement, especially if the Fed hints that they are ready to hike interest rates in the first quarter of next year. Upgraded GDP and employment forecasts might also lend more buying pressure for USDJPY.

On the other hand, a disappointing FOMC statement might lead to a deeper correction for USDJPY, along with an optimistic testimony from BOJ Governor Kuroda. Recall that the Japanese central bank head has been insisting that the economy could stay resilient and that further easing isn’t necessary for now.

Even with a potential selloff though, the uptrend remains strong for USDJPY and another bounce might take place from the support area at the 105.00 levels. The next long-term support area is at the 101.00 major psychological level.

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Samuel Rae is an active retail trader across a variety of assets, including currencies, stocks and commodities and the author of Diary of a Currency Trader (Harriman House). His personal strategy focuses primarily on classical technical charting patterns with a fundamentally supportive bias, combined with a strict, risk management-driven approach to entries and exits. He is an Economics graduate from Manchester University, UK.