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.
This article was written by Giuseppe Dellamotta at investinglive.com.
