USDJPY

USDJPY Bounces From 104 Again – Is It A Double Bottom?

The USDJPY pairs tumbled to the 104 level again but somehow managed to bounce from it. This is the second time it bounces from the same level in the last six weeks, making traders wondering if it had formed a double bottom at the area.

During a double bottom formation, the market bounces from the same place and breaks the recent series of lower highs. Next, it finds resistance at the neckline. Finally, it breaks the neckline and travels for the measured move equal to the distance from the neckline to the double bottom, projected from the neckline.

If that is the case or not, we will find out soon as the US elections week just started. The stock market futures are up so far in the trading week, and the positive sentiment lifts the risk-on too. However, the JY decoupled from risk-on risk-off moves recently, as it also decoupled from the Bank of Japan (BOJ)’ policy. 

The JPY Decoupled from the BOJ’s Policy

Last week the Bank of Japan announced that it leaves the monetary policy unchanged. Also, it noticed that private consumption since the summer has remained at low levels and that the pandemic generated a negative output gap for the first time since the 2008-2009 Great Financial Crisis.

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As such, the outlook for the Japanese economy remains dependent on the pandemic’s evolution. In short, the Bank of Japan’s easy policy and the measures it took should have weighed on the JPY in the months during the pandemic. Only that they did not, the JPY being one of the strongest currencies on the FX dashboard.

USDJPY Possible Double Bottom

To make the most of this possible double bottom, the bulls may want to wait for the price to break the series of lower highs. Effectively, it means a daily close and hold above 105.20 grants such a break and that move triggers an attempt to the neckline. For this trade, the invalidation would be a move below the 104 level.

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