USD/JPY outlook: Yen firmed after unchanged BoJ but strength is likely to be limited

Slobodan Drvenica Windsor Brokers

USDJPY

The pair pulls back from new seven-week high at 108.47, hit in post-Fed jump, after Bank of Japan kept policy unchanged but left the door open for possible easing in October.
The Fed cut interest rates by 0.25% on Wednesday, in widely expected action, aiming to provide insurance against ongoing risk, but signaled it will stay on hold in the near future.
The central bank said the US economy is in good shape for now, pointing on strong labor sector and expectations for inflation to return to Fed’s 2% target, but will continue to monitor the situation and will be ready to make further rate cuts if the economy shows signs of weakening.
The antagonism between President Trump and the head of US central bank deepened after yesterday’s cb’s decision, as President Trump accused Fed for too mild action regarding interest rates that adds to his previous comments that the central bank’s decisions continue to boost dollar and harm the US economy.
Yesterday’s decision also showed division between the FOMC members as seven members voted for 0.25% cut, two were for unchanged policy, while one member voted for 0.5% rate cut.
Overnight’s pullback probed below 108 handle (100DMA) but was for now contained by rising 10DMA (107.78) and just above the top of rising 4-hr cloud (107.70), which tracks the rally since the beginning of Sep and marks solid support.
Overall near-term picture is bullish, however, daily indicators (fading momentum and stochastic reversing from overbought territory) warn of deeper pullback.
Broken Fibo level at 107.46 and 55DMA (107.23) mark solid supports which are expected to hold extended dips and keep bulls in play for continuation of rally from 104.44 (26 Aug).
Weekly close above broken Fibo barrier at 108.06 (76.4% of 109.31/104.44) is expected to generate signal for extension towards barriers at 109.35/36 (200DMA / Fibo 61.8% of 112.40/104.44).
Only extension below daily cloud top (107.18) and rising 20DMA (106.99) would sideline bulls.

Res: 108.25; 108.47; 109.00; 109.36
Sup: 108.00; 107.78; 107.46; 107.23

Interested in USD/PY technicals? Check out the key levels

1. R3 109.03
2. R2 108.75
3. R1 108.6
PP 108.33
1. S1 108.18
2. S2 107.91
3. S3 107.76

Author

Slobodan Drvenica

Windsor Brokers

Industry veteran with over 22 years’ experience, Slobodan Drvenica joined Windsor Brokers in 1995 when he was an active trader for more than 10 years, managing the trading desk and own account departments.

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