Price & Time: USD/JPY - Marking Time Until The Fed
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- Would a USD/JPY rally into Thursday be cyclically negative?
- Cyclical inflection later this week
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There is a nice convergence of short-term cyclical relationships in a few of the main dollar pairs around the time of the “most important” Fed decision in years. Whenever you get these cyclical turn windows (i.e. time or analysis derived from the X-axis) around a big fundamental event like an interest rate decision it usually is a pretty good indicator that something somewhat material is about to impact price (i.e. the Y-axis).
In a lot of the dollar pairs I follow, I see risk for a decent selloff in the Buck a little bit after the Fed decision. The big caveat is that we need to see general dollar strength leading up into the event. If the dollar doesn’t rally into Thursday then I think it is probably safe to say something else cyclically is going on. Somewhat counterintuitively, a USD rally will actually put the currency in a vulnerable position and susceptible, in my view, to a decline lasting at least a few days and possibly a good while longer.
USD/JPY is a pair that I will be following closely heading into the FOMC. The weakness exhibited this morning after Kuroda’s press conference has caught me a bit by surprise. If it is indeed setting up for a top later this week like I suspect then it needs to turn up here soon and start making its way back towards resistance around 120.50. A failure there or higher on Thursday would set up a more important decline into next week.
A daily close under 119.35 before Thursday would complicate the cyclical picture a lot, but would probably warn that the dollar has already started an important move down. On the flipside, strength (if we get it) in the exchange rate strength past Thursday would be very positive.
--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com