USD/JPY is knocking on a pretty major support level on the daily time frame! Think it will bounce or break lower from the support?
Since GBP/USD traders aren’t in the mood to extend the longer-term uptrend, I thought I’d take a closer look at other major pairs instead.
Good thing I found a descending triangle on USD/JPY’s daily chart! More than that, it looks like the dollar is testing a major support area on the daily time frame.
As you can see on the chart below, USD/JPY is flirting with the 108.50 – 109.50 levels. This is a BFD since the psychological area is now lining up with last week’s low AND the bottom weekly ATR. Oh, and if you look closely, you’ll also see that there’s a bullish divergence on the chart.
So, think we’ll see a bounce or a downside break for USD/JPY? I hear that the Jackson Hole meetings are now in full swing. If Yellen sends hawkish vibes our way and talks about tightening the Fed’s balance sheet or even raising rates for a third time this year, then we might see the dollar bounce higher.
It also helps that traders and U.S. policymakers are about to come back from their vacation. Traders will likely buy dollar-denominated assets to kick off their post-vacation portfolio, while Congress members will start working on pro-growth projects.
But nothing is perfect and that includes policymaking. Until Congress actually raises the debt ceiling and shows progress on projects like tax cuts, infrastructure, or even the Wall (no, not the one from Game of Thrones), then we’ll deal with uncertainty that could further weigh on the dollar.
This is why I’ll be on the sidelines until I see momentum in either direction. If USD/JPY shows upside momentum, then I’ll target the triangle resistance near 112.50 and prepare for a possible upside break.
But if the pair breaks lower, then I’ll be selling the dollar like it was last season’s skirts and aim for the 105.00 – 106.00 area.
What do you think?
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