The 121.07-10 area holding support
The USDJPY has dipped below trend line support on the hourly chart as it positions itself for the FOMC decision at 2:00 PM ET. In the move lower, the price was also able to get below the 200 hour MA (green line in the chart below. Those levels come in at 121.23-25 currently. Not far from that those levels is the 100 hour MA (blue line) currently at 121.31. Topside trend line comes in at 121.41. There are a lot of levels, in a confined trading range.
On the downside, the lows from Monday and Tuesday come in at 121.07 and 121.10. The low today comes in at 121.096. Needless to say, the move below this floor should open up the pair for further downside momentum.
With the Fed decision around the corner and the USDJPY confined in a narrow trading range over the last 7 or so trading ranges, it opens the door for a breakout push on the decision. That can be in either direction dependent on whether "patient" is in or out.
If the Fed were to strike "patient" from the statement, that should lead to a surge higher in the USDJPY. I would expect that the price would have no problem getting above the 121.41 level on that headline.
The next targets after that would be:
- 121.66: High from March 12
- 121.83. This is the high price going back to December 8, 2014, and
- 122.01. This is the highest trading level for the USDJPY going back to July 2007.
Looking at the last time, the USDJPY traded above the 122.00 level in 2007 ( see chart below), the pair had a number of swing highs, and lows against the 122.05-23 area (see yellow area in the chart below). With the high for the year stalling at the 122.01 level this year, it seems traders may have anticipated this resistance. Getting and staying above this area will be an important hurdle for a continuation of the upside momentum (after the FOMC decision).
On a move above, the 123.66 and 124.13 are the next big targets (from 2007 - see chart below)).
For your guide, a move above the 122.23 level would imply a trading range for the day of 116 pips. This is a doable target.
Should the Fed keep the word "patient" in the statement, I would expect a break to the downside.
A move below the 121.00 support area outline above, would look toward the 120.73-81 area. This area corresponds to the three swing highs going back to December 23, December 30 and January 2nd (see 4 hour chart below). Below that the next targets would include:
- 120.567. The 38.2% of the move up from the February 17 low
- 120.38. The 100 bar moving average on the four-hour chart (blue line in the chart below). The high price from March 5 also is near this area at 120.40.
- 120.12. The 50% retracement of the move up from the February 17 low.
A move down to the 120.12 level would represent a range for the day (given the current high) of around 128 pips.
This would be a doable target should the fed keep the word "patient" in their statement.
With the USDJPY trading in such a narrow trading range, the potential exists for a break one way or the other. Keep in mind, that the statement is one thing. What Yellen says will be another. If they do strike patient, there should be a move higher, but be aware that comments from Yellen will likely be more cautious. So I would not be surprised to see topside levels respected initially. If you are inclined to buy, wait for a correction. I think there is a good chance to get one.
If "patient" remains, the downside move should be more aggressive. I still favor waiting for a correction to sell, but the 120.73-81 should be a nice line in the sand to lean against for a risk defining level.