FxWirePro: USD/JPY extends break below cloud, diminishing odds for an early Fed taper undermine dollar

USD/JPY chart - Trading View 

Spot Analysis:

USD/JPY was trading 0.21% lower on the day at 109.36 at around 06:55 GMT

Previous Week's High/ Low: 110.80/ 109.54

Previous Session's High/ Low: 110.45/ 109.54

Fundamental Overview:

Plunge in U.S. consumer sentiment last week allayed some concerns of an early tapering by the Federal Reserve.

Data released on Friday last week showed U.S. consumer sentiment dropped sharply in early-August to its lowest level in a decade.

U.S. Michigan consumer expectations for August was 65.2, while the Michigan consumer sentiment was 70.2 against 81.2 expected.

Data raised concerns that rising cases of Delta variant of the coronavirus threaten to dent the pace of economic recovery.

Focus now will be on the FOMC minutes that will be out on Wednesday while Fed chair Jerome Powell is speaking on Tuesday.

If the minutes show the FOMC discussed the possibility of announcing a taper as soon as September, the dollar could see sharp recovery. 

Later in the month, the central bank is also set to hold its annual conference in Jackson Hole, Wyoming.

Technical Analysis:

- USD/JPY plunged over 0.75% on Friday to close below the daily cloud

- RSI has turned bearish and has slipped below the 50 mark

- Price action has slipped below 200H MA 

- GMMA indicator shows bearish shift on the intraday charts

Major Support and Resistance Levels:

Support - 109.32 (21-week EMA), 108.82 (nearly converged trendline and 200-week MA), 108.19 (38.2% Fib)

Resistance - 109.51 (23.6% Fib), 109.94 (21-EMA), 110 (Cloud base)

Summary: USD/JPY trades with a strong bearish bias. Close below daily cloud has raised scope for further downside. The pair finds strong support at 21-week EMA at 109.32, Watch out for decisive break below for further downside. Dip till 200-week MA likely.