The U.S. dollar trimmed a little of its losses late Wednesday after the Federal Reserve's Beige Book cited a slowing economy and limited inflation pressure. Most of the damage to the Dollar was done earlier in the session, however, following a strong Portugal Bond sale and amid better news out of Canada and the U.K. Greater demand for riskier assets as evidenced by the strong rise in U.S. equities also contributed to the bearish tone affecting the Greenback.
Ahead of the release of this afternoon’s Federal Reserve Beige Book, U.S. Dollar was trading weaker against most major currencies. This report wasn’t expected to be a market mover, but traders were likely to read it to gain a little more knowledge into what the Fed was thinking when it made its recent Federal Open Market Committee decisions.
The Japanese Yen was under pressure versus the U.S. Dollar all session after rising to a 15-year high against the Greenback overnight. Strong moves in the equity markets helped to revive the carry-trade, underpinning the USD JPY. The Dollar/Yen also got a boost this morning after Japanese government officials expressed apprehension about the rise in its currency.
Technically, the USD JPY formed a closing price reversal bottom. This pattern, if confirmed on Thursday, often triggers the start of a two to three day rally with a minimum objective of 50% of the last swing down. If this is the case this time, then look for a short-term retracement to at least 84.63.
The USD JPY chart will get most interesting if 84.28 is regained. At this time, the Dollar/Yen is set up for a weekly reversal, but a close over 84.28 will put the market higher for the week, forming a reversal bottom.
Last week it appeared that conflicting forces were going to keep the Japanese Yen in a tight range, but after today’s action, it is clear that the USD JPY has a chance to make a tremendous rally if the Japanese government continues to threaten action against a strong Yen and if trader appetite for risk continues to grow.
