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USDJPY at Risk for Larger Correction on FOMC Meeting, Japan CPI

USDJPY at Risk for Larger Correction on FOMC Meeting, Japan CPI

2014-01-29 15:25:00
David Song, Strategist
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Talking Points:

- USDOLLAR Holds Trendline Support Amid Bets for $10B Taper

- JPY Correction to Gather Pace on Strong Japanese CPI Print

Index

Last

High

Low

Daily Change (%)

Daily Range (% of ATR)

DJ-FXCM Dollar Index

10659.52

10691.03

10657.49

-0.07

81.95%

USDOLLAR Daily

Forex_USDJPY_at_Risk_for_Larger_Correction_on_FOMC_Meeting_Japan_CPI_body_Picture_3.png, USDJPY at Risk for Larger Correction on FOMC Meeting, Japan CPI

Chart - Created Using FXCM Marketscope 2.0

  • Break of Trendline Support to Instill Bearish USD Forecast for February
  • Bearish RSI Divergence Favors ‘Selling Bounces’
  • Interim Resistance: 10,753 (23.6 expansion) to 10,759 (61.8 retracement)
  • Interim Support: 10,561 (100.0 extension)- Closing Basis

Release

GMT

Expected

Actual

FOMC Interest Rate Decision

19:00

0.25%

Fed QE3 Pace

19:00

$65B

Fed Treasury Purchases

19:00

$35

Fed MBS Purchases

19:00

$30

The bullish trend in the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar) may continue to take shape in February as the Federal Open Market Committee (FOMC) is widely expected to taper its asset-purchase program by another $10B.

Indeed, the initial reaction to a further reduction in QE3 should prop up the dollar, but a shift in the central bank’s forward-guidance may undermine the bullish sentiment surrounding the USD as Fed officials gauge the spillover effects to world economy.

As a result, if the policy statement highlights a greater risk to the global outlook, fears of a further delay in the Fed’s exit strategy may dampen the appeal of the reserve currency, and we may take a more bearish view for February should the USDOLLAR fail to hold trendline support.

Join DailyFX on Demandto Cover Current U.S. Dollar Trade Setups

Forex_USDJPY_at_Risk_for_Larger_Correction_on_FOMC_Meeting_Japan_CPI_body_ScreenShot028.png, USDJPY at Risk for Larger Correction on FOMC Meeting, Japan CPI

USDJPY Daily

Forex_USDJPY_at_Risk_for_Larger_Correction_on_FOMC_Meeting_Japan_CPI_body_Picture_1.png, USDJPY at Risk for Larger Correction on FOMC Meeting, Japan CPI
  • JPY Correction Remains in Play Amid Risk Aversion; RSI Threatening Support (37)
  • Interim Resistance: 103.50 Pivot to 103.70 (61.8 retracement)
  • Interim Support: 101.50 (78.6 retracement) to 101.90 (78.6 expansion)

Three of the four components weakened against the greenback, led by a 0.24 percent decline in the Australian dollar, while the Japanese Yen bucked the trend as market participants scaled back their appetite for risk.

The Yen correction may gather pace in February as the Bank of Japan (BoJ) retains its wait-and-see approach, and a strong Japanese CPI print may prop up the low-yielding currency over the next 24-hours of trading as Governor Haruhiko Kuroda retains his pledge to achieve the 2 percent inflation target by 2015.

With that said, a break below interim support (101.50-101.90) may trigger a move back towards the 100.00 handle, but we will implement a ‘buy the dip’ strategy when the USDJPY finally carves a higher low within the long-term uptrend.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

To be added to David's e-mail distribution list, please follow this link.

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