The U.S. dollar weakened significantly following lack of action from the BOJ and a change in tightening expectations from the FOMC. Earlier in the London session, Japan Chief Secretary Suga stated they are watching FX with a sense of urgency. The markets took that comment as verbal intervention and USD/JPY rallied from the 110.30 area to 110.83 before giving up all of its gains.
This week is highlighted with nine Fed members speaking, with six being voters. The main focus regarding the Fed will fall on tomorrow’s minutes. If nearly all the policymakers fall in line with Janet Yellen’s dovish tone, we could see fresh lows for the dollar.
The next couple of trading sessions remain key for dollar/yen as the 110 handle highlights the level where on Oct 2014 the BOJ increased its easing program to from ¥60-70 trillion to ¥80T.
The USD/JPY daily chart shows that if we continue to see selling pressure, major support may come from the 108.70-109.00 zone. It is around that area that a bullish butterfly pattern may form. If valid, we could see a major bullish reversal that could target a run back towards the 112.00 level, which is a key pivot area.
If the bullish reversal pattern is invalidated, the psychological 105.00 level could provide major support.
The trade: Buy USD/JPY 108.75, with a stop loss at 107.75 and take profit at 111.75. The risk/reward ratio is 1:3