It's been a strong past week for USD/JPY, even as the pair opened last week with its first 140.00 test in a year, followed by the 50 bp rate cut from the FOMC on Wednesday. That built-in a sequence of higher-highs and lows as the Wednesday swing low held above the Fibonacci level at 140.30, and buyers pressed ahead to close last week. And even on Monday, there was a test of support at a prior resistance level of 143.45 which had held.
The extension of that bounce ran into a bearish trendline taken from mid-August and September swing highs and, so far, that's brought bears back into the matter.
On a fundamental case the bearish side is perhaps as attractive as it's been since before the Fed started hiking rates in 2022, but that's been the case and so far, the pair has continued to push higher in what looks like short-covering from the shorter-term theme that's priced-in since the BoJ intervention in July.
At this point, there's still scope for higher-low support at 142.50 or 141.69. If support shows there, the falling wedge remains viable and this is something that can lead into a more extended pullback in USD/JPY.
But if bulls can't hold the lows and we see reversion towards 140.00, then that longer-term carry unwind theme takes on more prominence, and if that support breaks down, it could pull the US Dollar along with it. - js
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