A quick look at USD/JPY’s chart tells us that USD has juuust missed the big 140.00 level and is currently trading about 400 pips from its levels two weeks ago.
What’s up with that?!
Risk-taking may have factored after earnings from a few key US businesses challenged concerns of a deep recession.
And then there are profit-takers, who repriced their biases to reflect a less hawkish tightening path for the Fed.
The uncertainty and anticipation around the Fed’s rate decision have helped lock USD/JPY inside a possible Head and Shoulders pattern on the daily time frame.
Does this mean that USD/JPY is ready for a reversal or a deep retracement?
The pair hasn’t formed its second “shoulder” just yet but it’s finding support from its “neckline” so a Head and Shoulders pattern is still on the table.
Keep close tabs on what traders will price over the next couple of days.
If they focus on Powell sharing that another “unusually large” interest rate increase may be appropriate, or if market themes from around the world lead to risk aversion, then USD/JPY could extend its uptrend.
Stochastic nearing oversold levels and the 100 SMA widening its gap against the 200 SMA could help USD/JPY bounce all the way to its 140.00 previous highs.
However, if markets continue to celebrate the Fed slowing the pace of its rate hikes, or if more traders worry that “the path to a soft landing has clearly narrowed, and it may narrow further,” then USD/JPY may break to the downside .
USD could drop to the 131.00 previous resistance or hit inflection points closer to the 100 and 200 SMAs.
Watch this one closely, folks!
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