Technical analysis: USD/ JPY retest support, reaches decision point

Published On: 1 September 2020
Jason Chua, Dealer

On 27th August, the Fed announced an update on in its monetary policy framework, changing to an approach of average inflation targeting with the longer-run goal at an inflation rate of 2%. This means that it would allow inflation moderately above 2% to bring the average inflation to 2%. What this signifies is that the Fed might not increase interest rates even when the unemployment rates have improved, which is a bearish sign for the dollar. On a side note, the dollar index (DXY) is trading near the year low (a drop of more than 9% since March level) and is still looking on a further downtrend.

Looking on a 4H candle, we could see USD/JPY (UJ) on a downtrend for the past 3 months. UJ tried to recover in the week but was pushed down again due to Fed announcement. On Technical, we could see that 105 to 105.3 would be a strong support level where significant profit-taking would be taking place. However, with the current momentum, there is a good possibility of the support breaking bringing us to 104 in the week.

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