USD/JPY On a Weekly High but More Downsides Possible

The dollar gained against the Yen, rising to a high of around 108.640 on Tuesday. Dollar gains came at the back of rising treasury yields and consumer confidence index, which rose to 121.7 in April, the biggest since February 2020.

What Technical Indicators Say

Trend: Bearish

USD/JPY has maintained a bearish momentum since the beginning of April. The pair reached a monthly low at around 107.621 before bouncing back from a bullish pin bar in what is seemingly a support/event area.

Prices are now heading upwards towards the resistance area at around 109.295, aided by the treasury yields momentum. The Bank of Japans decision to keep its policy parameters intact also set the tone of the pair.

Key Area to Watch

The area around 109.295 should be a key point to watch for further direction on USD/JPY trading. Prices had tested this area before and bounced back, which makes it a key resistance area. If prices fail to break above this level, more downsizes are likely in continuation with the bearish trend that the part started at the beginning of the month.

What to Look for in USD/JPY Pair

We would be looking at a price action sell signal at the 109.295 level. Preferably, a bearish pin bar around the resistance level would suggest a price direction to the downside.

Any rejection to the upsize (via a confirmation through the pin bar) would expose the pair to further weaknesses with targets around the previous support/event area at 107.621. Additional targets could include the area around 106.998 and 106.657.

FOMC

The federal reserve statement on Wednesday could set the tone for the direction of the dollar and the USD/JPY pair. A more hawkish statement, meaning a rise in interest rate, will be good for the dollar. However, Fed has always hinted at keeping policy unchanged to support the economy battered by the coronavirus and maintain inflation targets.

So, the expectations are that FOMC will be dovish in its statement or will keep rates unchanged. Although this is purely speculative, it is important to decipher the tone of the Fed as it will be crucial in determining the next move of the dollar. Any policy stance will be technical to the dollar, and we ought to consider this in the next move on USD/JPY.

Keeping rates unchanged (most expected) is least likely to have major impact on the dollar. We could see more upsides on the dollar in continuation of the current short-term trend momentum before retracing back at the 109.295 resistance level.

Investors should adopt a wait-and-see attitude at the moment for the USD/JPY pair. The pair is currently trending up (which is against the trend) and not in any particular event area to enter trades.

With the clear downtrend since the start of the month, shorts would be more advisable. The right confirmation (bearish pin bar) should emerge from the retracement to the resistance level for shorts to hold.

Keeping an eye on the FOMC statement would be advisable in judging the next move of the U.S dollar and USD/JPY.