USD/JPY spikes to the downside after the FOMC decision, but dollar losses are set to be short-lived
USD:
The US dollar weakened across the board yesterday despite three dissenters voting for a rate hike. The consensus was that Fed's Logan and Fed's Hammack would prefer a rate increase at this meeting, but we also got Fed's Kashkari.
I guess the fact that Fed's Kashkari is a hawkish member, combined with the roughly 30% probability of a rate hike that was priced in before the release, led to a reset in positioning, even though nothing has changed in the bigger picture. So, I would expect the US dollar losses to be faded soon.
Fed Chair Warsh didn't offer any clues about the next meeting as he continues to limit forward guidance. Therefore, the next big event will be the US CPI report on the 12th of August as the data will likely decide whether the Fed hikes in September or not.
On the geopolitics side, the situation in the Middle East has barely changed, although Trump’s rhetoric seems to have softened a bit. Nevertheless, until we get a clear de-escalation, inflation risks will remain skewed to the upside due to higher energy prices.
JPY:
On the JPY side, the BoJ is expected to hold interest rates steady tomorrow while upgrading growth forecasts and potentially near-term inflation outlook. The focus will be on the forward guidance after a Bloomberg report last week suggested that some BoJ officials viewed the weaker JPY as adding upside inflation risks and that they would be open to raise interest rates at a faster pace.
Following the report, traders brought forward rate hike expectations with now a 70% chance of a move in October (it was December before the report). The JPY spiked to the upside but gave back the gains pretty quickly as the overall fundamental picture remained unchanged.
Keep in mind that Japanese officials might start looking for stealth interventions to slow down the depreciation although the trend is unlikely to change without a dovish repricing in Fed interest rate expectations or a faster BoJ tightening pace. Traders will focus on BoJ Governor Ueda press conference and look out for hints or explicit signals about faster tightening.
USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDJPYis still consolidating around the cycle highs. If we get a retest of the 162.85 level, we can expect the buyers to step in with a defined risk below it to keep pushing into new highs. The sellers, on the other hand, will want to see the price falling below the 162.85 level to pile in for a drop into the 160.50 support next.
USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see the price pulled back into the upward trendline that continues to define the bullish structure. The buyers stepped in around the trendline with a defined risk below it to position for a rally into new cycle highs. The sellers, on the other hand, will want to see the price breaking lower to extend the pullback into the 162.85 level next.
USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the price action might continue to be rangebound. From a risk management perspective, the buyers will continue to have a better risk to reward setup around the trendline, while the sellers will gain more conviction for a bigger correction with a break below the 162.85 level. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we get the US PCE price index, the Advance Q2 GDP and the Jobless Claims figures. Tomorrow, we conclude the week with the Tokyo CPI, the BoJ rate decision and the US Q2 Employment Cost Index. Traders will also keep monitoring US-Iran developments.
This article was written by Giuseppe Dellamotta at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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