Dollar/Yen Posts Reversal Bottom; Short-Term Rally Imminent

The U.S. dollar trimmed a little of its losses lateWednesday after the Federal Reserve’s Beige Book cited a slowing economy andlimited inflation pressure. Most of the damage to the Dollar was done earlierin the session, however, following a strong Portugal Bond sale and amid betternews out of Canada and the U.K. Greater demand for riskier assets asevidenced by the strong rise in U.S.equities also contributed to the bearish tone affecting the Greenback

The U.S. dollar trimmed a little of its losses lateWednesday after the Federal Reserve’s Beige Book cited a slowing economy andlimited inflation pressure. Most of the damage to the Dollar was done earlierin the session, however, following a strong Portugal Bond sale and amid betternews out of Canada and the U.K. Greater demand for riskier assets asevidenced by the strong rise in U.S.equities also contributed to the bearish tone affecting the Greenback.

Ahead of the release of this afternoon’s Federal ReserveBeige Book, U.S. Dollar was trading weaker against most major currencies. Thisreport wasn’t expected to be a market mover, but traders were likely to read itto gain a little more knowledge into what the Fed was thinking when it made itsrecent Federal Open Market Committee decisions.

The Japanese Yen was under pressure versus the U.S. Dollarall session after rising to a 15-year high against the Greenback overnight.Strong moves in the equity markets helped to revive the carry-trade,underpinning the USD JPY. The Dollar/Yen also got a boost this morning afterJapanese government officials expressed apprehension about the rise in itscurrency.

Technically, the USD JPY formed a closing price reversalbottom. This pattern, if confirmed on Thursday, often triggers the start of atwo to three day rally with a minimum objective of 50% of the last swing down.If this is the case this time, then look for a short-term retracement to atleast 84.63.

The USD JPY chart will get most interesting if 84.28 isregained. At this time, the Dollar/Yen is set up for a weekly reversal, but aclose over 84.28 will put the market higher for the week, forming a reversalbottom.

Last week it appeared that conflicting forces were going tokeep the Japanese Yen in a tight range, but after today’s action, it is clearthat the USD JPY has a chance to make a tremendous rally if the Japanesegovernment continues to threaten action against a strong Yen and if traderappetite for risk continues to grow.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

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