The US Dollar is set for a corrective bounce against the Japanese Yen as the pair is lagging behind the equities’ recent rally. The risk-off sentiment remains the major market driver after the pair dropped 400 pips in a few days amid escalating trade tensions, but a short-term corrective bounce looks like is ahead of us. At the beginning of the day, the BOJ released the minutes of its July meeting. The document showed that some members are concerned about the risks to the outlook and called for discussion on ways to ramp up stimulus, although other members expressed concerns about the effects of easing in financial institutions. Traders should keep in mind that any negative headline regarding the trade war or interest rates could trigger another sell-off and will invalid the recent short-term bullish bias.
The bulls were able to defend the 105.50 support level, possibly forming a double-bottom reversal pattern. If the buyers find enough momentum to push price above 107, it will confirm the reversal pattern and we will likely see extended gains. However, failure to hold above 105.50 would invalidate the recent bullish perspective, and the market could drop to new lows.
Support: 105.85 / 105.50
Resistance: 106.50 / 106.80