USD/JPY Forecast July 13, 2017, Technical Analysis

The USD/JPY pair fell apart during the trading session on Wednesday as Janet Yellen testified in front of Congress. Essentially, she suggested that although the market can expect interest rates hikes, the reality is that it will be slow. That may indicate that the pair has been a bit overbought. A breakdown below the 113 level should send this market looking for the 112 level, and that gets this market bearish for the short term. Longer-term, I still believe that we probably go higher, but we need to build up momentum to break above the massive resistance at the 115 handle. In the meantime, I think that longer-term trading should be a “buy on the dips” type of scenario, and that might be what we’re seeing.
Bank of Japan
Keep in mind that the Bank of Japan is altar easy and will continue to be for the near future. Because of this, the market should continue to favor the US dollar over the Japanese yen, but in the short term I think some repricing of the speed of interest rate hikes is probably due. Because of this, I think it’s only a matter of time before the buyers return, but in the short term I think we will continue to see quite a bit of negativity in this pair, and the 112-level underneath will be a target. Ultimately, this is a market that I think will struggle in a back and forth motion, but eventually should make a longer-term move to the upside. Nonetheless, I don’t see that happening soon, as the summer might be more overall consolidation. I’m seeing this in other currency pairs as well, so I don’t know that this one would be any different. Lack of volume will continue to play the markets in general.