Watchlist: Bearish Reversal on USD/JPY?

 It looks like sentiment is starting to shift in USD/JPY with signs that the bears are taking control. And there’s a chance that could turn into a momentum move with the latest monetary policy statement coming soon from the Federal Reserve.

Bearish Reversal on USD/JPY?

The U.S. dollar may be making big moves in the near future with the big risk event of the week right around the corner: The Federal Reserve’s latest monetary policy statement.

Expectations are that there will be no changes to monetary policy, and that the Fed will continue to downplay the swift inflation data we’ve seen in recent months.

But with covid-19 cases accelerating around the U.S., there are concerns now that the economic rebound may slow rapidly as governments begin to reinstate measures to slow the spread (e.g., CDC to reverse indoor mask policy).

This change up the Fed’s expected statement to a more cautious tone on the recovery, potentially throwing a wrench into the idea of the Fed tightening up on monetary policy this year.

This scenario may catch the markets off guard and create a negative turn in USD/JPY as traders reduce “rate hike/inflation” bets and move towards safe havens.

We’re already seeing this move in the four hour chart above of USD/JPY as bulls were once again rejected at the broken rising ‘lows’ pattern/minor psychological level of 110.50.

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So, IF the Fed gives the market a more cautious tone this week and risk sentiment continues to shift negative, then we’ll be watching for a sustained break of the next support area around 109.50 for a potential short position.

Momentum may pick up to the downside in this scenario, potentially creating a swing short move to the next major low area around 107.50 within the next few weeks.

What do you guys think? Will the Fed sound more cautious on the economic recovery? Will USD/JPY break below 109.50 or will the bulls defend the area? 

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