The U.S. dollar weakened significantly after the FOMC decision and updated economic forecast. As expected, the Fed kept rates steady. The key focus fell on the Fed’s median forecast for end-2016. The forecast was lowered from 1.375% to 0.875%, which implies a cut to two rate hikes from a previously stated four rate hikes.
During Fed Chair Yellen’s FOMC press conference, she failed to affirm the Fed’s updated forecast for two additional hikes. The dollar remained weak throughout the remainder of the U.S. session, but the longer-term outlook regarding the US economy remains strong and we may see limited weakness going forward.
The USD/JPY 60-minute chart shows that if we continue to see selling pressure, major support may come from the 111.60-112.00 zone. It is around that area that c a couple of bullish butterfly patterns may form. If valid, we could see a major bullish reversal that could target a run back towards the 114.00 level, which is the top of the recent consolidation pattern.
If the bullish reversal pattern is invalidated, the psychological 111.00 level could provide key support. Deeper support could come from the 110.00 level.
The trade: Buy USD/JPY 111.75, with a stop loss at 110.75 and take profit at 113.75. The risk/reward ratio is 1:2