- The Federal Reserves is meeting tomorrow to decide on the next steps
- USD/JPY has formed the head and shoulders bearish reversal chart pattern during the ongoing downtrend
- A completion of the head and shoulders reversal formation would mean a trip to $102.30
USD/JPY has formed the head and shoulders bearish reversal chart pattern during the ongoing downtrend. In the meantime, investors are waiting to hear from the Fed tomorrow about the next steps it plans to undertake to help the embattled economy.
Fundamental analysis: Dollar under severe pressure
The U.S. dollar is trading under intense pressure as a consequence of Federal Reserve slashing of key interest rates and excessive money-printing. Investors are now waiting to hear from the Fed tomorrow with many expecting a new set of measures to support the embattled economy.
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“It seems like we’re seeing the dollar lose its crown. There are high expectations you’re going to see the Fed continue to signal that they’re prepared to do more at a longer run, and the U.S. economic recovery is not going to be anywhere near as smooth as what is unfolding in Europe,” said Edward Moya, senior market analyst at OANDA.
Analysts are now ruling out a possibility of a V-shaped economic recovery. Judging by the data, the number of Americans filing for unemployment benefits has risen. Hence, the Fed may follow the Bank of Japan in setting a target to perform continuous purchases of government bonds.
“I think you’re going to see a steady amount of investment and market positioning going back to Europe, and that will provide some room for much more weakness here with the U.S. dollar,” added Moya.
EUR/USD hit the highest levels since September 2018 yesterday as the buyers now target $1.20. The pound has also advanced to a 5-month high against the dollar although EUR/GBP moving higher is keeping the lid on sterling’s bullish move.
Technical analysis: A head and shoulders pattern activated
Similarly to sterling, USD/JPY has plunged lower to revisit the March lows. A horizontal support line at $106 proved to be a tough nut to crack for the sellers, although its break accelerated losses.
On the way down, USD/JPY has created a head and shoulders pattern. This is a bearish reversal formation that helps the sellers to reverse the trend. From a mini uptrend, the price action is now trading in an aggressive downtrend.
A break of the neckline around $106 has activated the pattern. The target is measured by copy-paste the vertical trend line that connects the head with a neckline. This way, we get $102.30, which is the target for the sellers.
Investors are eagerly anticipating to hear from the Federal Reserve tomorrow. This may either accelerate the downfall for the greenback or help buyers to stage a relief rally. Technically, the price action has activated a head and shoulders pattern with a target set at $102.30.