USD/JPY has plummeted around 200 pips after yesterday’s FOMC decision and press conference. The financial markets were anticipating a more hawkish message and possibly a sign that the Fed will raise rates at the September meeting. That did not happen. Fed Chair Yellen focused on weaker US first half growth and even said that it is possible for an increase not to occur until March 2016.
In my last post, I highlighted that the USD/JPY formed a bearish butterfly pattern that signaled a key reversal that is now accelerating. If we see some weaker prints regarding the U.S. economy, we could see the bearish move sink prices towards the 50-day SMA, which is currently trading at the 121.23 level. Additional support may also come from a potential bullish Gartley pattern. Point D could be targeted by both the 61.8% Fibonacci retracement level of the X to A rally and the 141.4% Fibonacci expansion level of the B to C leg.
If the 122.40 level holds, we could see a slight rebound towards the 123.00 zone. Only a breakout above this level and an impressive reading on Tuesday’s Durable Goods Orders release, could support a stronger bullish rally.
The trade: Sell USD/JPY 122.75, with a stop loss at 123.35 and take profit at 121.55. The risk/reward ratio is 1:2
Edward J. Moya
Senior Market Strategist
WorldWideMarkets Online Trading