USD/JPY drops on Jones victory, bearish doji reversal on the cards?

The USD is being offered following Jones' victory in Alabama.
USD/JPY could be in for a bearish doji reversal pattern.

Omkar Godbole FXStreet Contributor

The American dollar is losing weight across the board as Jones' victory in Alabama will make it more difficult for the Republicans to push forward with tax reform.

The USD/JPY pair fell to a three-day low of 113.13 and was last seen trading at 113.28 levels.

Currently, Republicans are 52.48 in Senate Following the certification of victory on or after Dec. 26, Republicans will be 51-49 in Senate. So, Jones is unlikely to reveal his position on the tax reform before Dec. 26.

Thus, the GOP will have to ensure the tax package is approved before Dec. 26, post which the odds of it clearing the Senate test will drop. The decline in USD indicates the markets are factoring in a possible delay in tax reform approval.

Bearish doji reversal?

Yesterday's doji candle, if followed by a negative close today, would signal bearish doji reversal. The spot has dropped following Jones' victory, but could regain bid tone and move above 114.00 levels if the Fed hikes rates and sounds upbeat on the economy and interest rates.

However, odds are high that Yellen would keep guidance to a minimum and would regain from announcing major changes to the economic forecasts. In such a case, the USD could drop as the 25 bps rate is already priced-in.

USD/JPY Technical Levels

A bearish doji reversal would mean the rally from the November low of 110.84 has topped out. A break below 112.89 (50-day MA + 10-day MA) would open doors for 111.99 (Dec. 6 low) and 111.90 (38.2% Fib R of Sep. 8 low - Nov. 11 high). On the higher side, breach of resistance at 113.38 (5-day MA) could yield a re-test of 113.57 (session high) and 113.75 (previous day's doji candle high).

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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