US dollar all over the place against Japanese yen

The US dollar initially fell against the Japanese yen in a bit of a “risk off” trade to reach down towards the ¥180 level. Ultimately, this is a market that has plenty of support underneath due to not only the ¥108 level, but the 61.8% Fibonacci retracement level as well. As you can see though, the market has fallen significantly only to bounce quite drastically. Keep in mind that this pair is highly sensitive to the overall risk appetite in stock markets, so you can only expect more drama ahead.

With the Federal Reserve coming out with a statement during the trading session on Wednesday, it’s very likely that we will see extreme amounts of volatility around 2 PM EST as the announcement comes out. Looking at the chart though, there are a couple of places to pay attention to.

If we can break above the ¥108.80 level on an hourly close, it’s very likely that this market will go higher to try to wipe out the breakdown candle meaning that we could go as high as ¥109.60. However, if we break down below the ¥107.75 level, it’s very likely that we could continue to go much lower, perhaps break down to the ¥105 level.

Quite frankly, this is a situation where it’s going to come down to what the Federal Reserve thinks they are going to do going forward. If there is quantitative easing ahead, we could see this pair rally, as it would become a proxy for the stock market with a particular emphasis on the S&P 500. Otherwise, if the Federal Reserve is very hockey shortly snide dovish enough, we could break down rather drastically. With that being the case it’s very likely that we will see an explosive move in one direction or another. Between now and the announcement, expect choppiness.