USD/JPY Potential Bullish Butterfly Pattern

The US dollar is the worst performing currency today, as Fed rate cut bets show markets are convinced they will see 50 basis points in rate cuts this year with possibly 75 bps worth over the next 12 months.

Despite broad dollar weakness, USDJPY appears to be holding key support as risk appetite remains supported on beliefs that low-inflation and low-growth will lead to stable central bank support, thus providing optimism the US expansion will continue.

Currently price has tentatively found key support from 108.00, which is where we could be seeing the formation of a bullish butterfly pattern.  This was covered in this week’s MarketPulse webinar (fast forward to the 59 minute 45 second mark).  Point D is confirmed with the 161.8% Fibonacci expansion level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C move.

If we do see a major bullish breakout, major resistance is gathering around the 110.50 level, which is where currently near both the 50- and 100-day Simple Moving Averages (SMAs).  If the bullish pattern is invalidated, bearish momentum could target the 106.68 level initially, which is the 78.6% Fibonacci retracement of the 2018 low to high move.

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