Does the pullback in the USDJPY have legs?

Mark O'Donnellon 01/08/2022|
2 min read

The US dollar has retreated against its major trading pairs over the past two weeks, but notably, the  USDJPY has seen one of the most interesting pullbacks. After peaking on July 14, the USDJPY has fallen  more than 4% from a peak just below 139.500. 

The 2-week weakening streak may continue as the sentiment from the previous FOMC meeting has  been conceived as mildly negative for the USD. The Federal Reserve increased its interest rates by 75- basis-points for the second consecutive time on Wednesday, but Chair Jerome Powell stated that a  slower hike pace is a possibility, suggesting that the hawkishness may have already passed its peak. This  sentiment sent the USDJPY on a sharp correction to the downside.  

The perspective on this pair on the daily timeframe suggests that the USDJPY may continue its  downward trajectory as the price closed below the 50-day moving average, closing in on 133.300 after  creating a low at 132.504.  

Together with the Donchian Channel Fibonacci Zone, we can see that the price fails to stay inside the  blue zone after hitting a high of 138.879, breaking below the grey zone and creating a three-day  consolidation range between 137.422 and 136.086 before falling inside the orange zone indicating a  possible downtrend. 

USDJPY 1D, with 50DMA and Donchian Channel Fibonacci Zone 

With this indicator, the price inside the blue zone is considered an uptrend zone, and the grey zone is  considered a ranging zone, while the orange zone is considered a downtrend zone. These Fibonacci  lines/zones can also act as either support or resistance levels, and can be used by traders as entry and  exit points.