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USDJPY at Risk for Larger Correction on FOMC Meeting, Japan CPI

January 29, 2014

David Song

Talking Points: - USDOLLAR Holds Trendline Support Amid Bets for $10B Taper - JPY Correction to Gather Pace on Strong Japanese CPI Print Index Last High Low Daily Change (%) Daily Range (% of ATR) DJ-FXCM Dollar Index 10659.52 10691.03 10657.49 -0.07 81.95% USDOLLAR Daily Break of Trendline Support to Instill Bearish USD Forecast for February Bearish RSI Divergence Favors 'Selling Bounces' Interim Resistance: 10,753 (23.6 expansion) to 10,759 (61.8 retracement) Interim Support: 10,561 (100.0 extension)- Closing Basis Release GMT Expected Actual FOMC Interest Rate Decision 19:00 0.25% Fed QE3 Pace 19:00 $65B Fed Treasury Purchases 19:00 $35 Fed MBS Purchases 19:00 $30 The bullish trend in the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDollar ) may continue to take shape in February as the Federal Open Market Committee (FOMC) is widely expected to taper its asset-purchase program by another $10B . Indeed, the initial reaction to a further reduction in QE3 should prop up the dollar, but a shift in the central bank's forward-guidance may undermine the bullish sentiment surrounding the USD as Fed officials gauge the spillover effects to world economy. As a result, if the policy statement highlights a greater risk to the global outlook, fears of a further delay in the Fed's exit strategy may dampen the appeal of the reserve currency, and we may take a more bearish view for February should the USDOLLAR fail to hold trendline support. USDJPY Daily JPY Correction Remains in Play Amid Risk Aversion; RSI Threatening Support (37) Interim Resistance: 103.50 Pivot to 103.70 (61.8 retracement) Interim Support: 101.50 (78.6 retracement) to 101.90 (78.6 expansion) Three of the four components weakened against the greenback, led by a 0.24 percent decline in the Australian dollar , while the Japanese Yen bucked the trend as market participants scaled back their appetite for risk. The Yen correction may gather pace in February as the Bank of Japan (BoJ) retains its wait-and-see approach, and a strong Japanese CPI print may prop up the low-yielding currency over the next 24-hours of trading as Governor Haruhiko Kuroda retains his pledge to achieve the 2 percent inflation target by 2015. With that said, a break below interim support (101.50-101.90) may trigger a move back towards the 100.00 handle, but we will implement a 'buy the dip' strategy when the USDJPY finally carves a higher low within the long-term uptrend.

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Source: DailyFx

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