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USD/JPY is Trading In a Falling Channel

The USD/JPY is consolidating after tagging 101.10 last week. It is likely doing so ahead of Janet Yellen's semi-annual testimony in front of congress.

Traders are looking for clues on whether the FOMC will raise rate earlier or later than the currently projected mid-2015 time-line. While Q1 growth and some Q2 data has suggested a push-back. Inflation and employment data has countered. The USD/JPY has been bearish since June, suggesting the market expects the FOMC to remain conservative as the economic recovery has hit a snag early this year.

USD/JPY 4H Chart 7/14

The 4H USD/JPY chart shows a pair in a declining channel. Momentum shown by the RSI  is not very clear, but price action simply shows lower highs and lower lows. 

In the next couple of days, the integrity of this falling channel, and price action relative to the 102-handle can clue us in on direction going forward.

Janet Yellen:

For example, a hawkish Janet Yellen would be one who leaves the earlier rate hike on the table, and suggests no need to push back beyond mid-2015. This should help USD/JPY stay buoyant. If this is accompanied by price pushing above 102, and the falling channel, we are likely to see a rally toward the highs going back to April around 103.

A dovish Janet Yellen would be one that suggests consideration of keeping the low interest rate regime longer. If she suggests that data has been below expectations, the implication would also be for a push-back in rate hike. In this scenario, price should hold below 102, and the channel resistance. The focus will be on the 100.75-85 lows on the year.