USD/JPY consolidates around 160.00 as traders turn their focus to the FOMC decision
FUNDAMENTAL OVERVIEW
USD:
After the weakness triggered by the surprising breakthrough in US-Iran negotiations on Thursday, the US dollar consolidated as traders shifted their focus to the FOMC decision.
The Fed is widely expected to keep interest rates unchanged and remove the easing bias from the statement. At this meeting, we will also get the Summary of Economic Projections (SEP) where inflation is expected to be revised higher while unemployment lower in the short-term. The focus will be mostly on the dot plot which is expected to show no cuts this year. All of this is expected and already priced in.
Fed Chair Warsh’s first press conference will also be in focus. Trump just gave him a big assist by ending the war, so Warsh can say the Fed can look through the short-term increase in inflation. The hawkish surprise could be the Fed signalling one or more rate hikes by year-end in which case we can expect the greenback to get a boost.
On the other hand, a dovish surprise would be the Fed keeping one rate cut by year-end or in 2027 as that would still be seen as an easing bias. Warsh has repeatedly stated that he doesn’t like forward guidance, so we might not get much from his press conference.
Looking ahead, the risk is that the negative supply shock caused by the US-Iran war turns into a positive demand shock as the conflict ends that boosts economic activity further requiring rate hikes anyway. That’s likely to be the next tail risk.
JPY:
On the JPY side, the BoJ hiked the policy rate to 1.00% as widely expected and announced the pause to the bond tapering programme from next fiscal year.
The forward guidance remained much the same with the BoJ looking to continue that normalisation process, raising the policy interest rate and degree of monetary accommodation “in response to developments in economic activity and prices as well as financial conditions”.
BoJ’s Uchida didn’t offer anything new in the press conference reiterating the central bank’s willingness to raise rates further if economic conditions align. The Japanese yen weakened slightly following the decision but eventually consolidated as the focus shifted to the FOMC decision.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPY is consolidating around the 160.00 handle as traders await the FOMC decision. The natural target remains the cycle high around the 162.00 handle. A more dovish than expected Fed could trigger a bigger pullback into the 158.00 support, while a more hawkish one should lead to a rally into the 162.00 level.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see the minor upward trendline continues to act as support. We can expect the buyers to continue to lean on the trendline with a defined risk below it to keep pushing into new highs. The sellers, on the other hand, will want to see the price breaking lower to pile in for a drop into the 158.00 support next.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as from a risk management perspective, the buyers will have a better risk to reward setup around the upward trendline to position for new highs, while the sellers will gain more conviction for further downside on a break below the trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we have the FOMC rate decision. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we get the Japanese CPI report and the expected signing of the US-Iran “peace deal” in Switzerland.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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