- Up to challenge the descending channel’s resistance again as the outcome of the FOMC.
- USD/JPY: eyes are at the 111.30/50 and barrier congestion level.
USD/JPY has rallied from the pre-Fed level of 110.42 to test the bear’s commitments at 110.80, marking the highest level since 22nd May at 110.85. The tone from the Fed who hiked today by 25bps is hawkish and that is underpinning the dollar. USD/JPY has risen to challenge the descending channel’s resistance again as the outcome of the FOMC has taken up the leftovers in dollar positioning after a highly anticipated priced in Fed.
The key takeaways are:
- Projection is for 2.4% from 2.1% last with 4 rate hikes in 2018.
- The Fed Sees 3 hikes in 2019 to 3.1% from 2.9%.
- The Fed has raised their GDP outlook to 2.8% from 2.7%.
- The Fed has lowered their unemployment to 3.6% from 3.8%.
- The Fed sees core PCE by the end of 2018 at 2.0% from 1.9%.
- The Fed sees PCE inflation at 2.1% from 1.9%.
Meanwhile, the yen will remain on the backfoot with the yield spreads widening in a JPY-negative manner. (The 2Y U.S.-Japan spread has fully retraced its decline from mid-May). The ten years are up 0.88% in between the day’s range of 2.945 – 3.006%, currently at 2.99%. The two years are up 1.45% at 2.5860% within the day’s range of 2.524 – 2.603%.
Currently, Fed’s Powell is speaking during the presser with the following key comments so far:
- Jerome Powell speech: No comments on specific changes to the trade policy
- Jerome Powell speech: Rates expected to move closer to neutral level over the next year or so
- Jerome Powell speech: Too soon to declare victory on inflation
- Jerome Powell speech: Will hold press conferences after each FOMC meeting from January onwards
Looking ahead, the domestic risk is limited ahead of Friday’s industrial production data and BoJ policy decision.
USD/JPY levels
on clearing through the descending channel’s resistance at 110.80/90, eyes are on the May 111.39 peaks. 111.50 comes as an option barrier that sits in a congested area where the 161.8% of May low & 76.4% of May drop is located. Further out, the 112.30’s, (Fibos at 112.22/33) remain key upside target. On the other hand, but not a favoured scenario, a break below the Tenkan prop at 109.19, bears can look to the 55-DMA & daily cloud top around 108.60. 108.06, (100-D SMA), guards a run towards the mid-107.00s with the 2018 low at 104.56 in focus on the downside.
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