- The Federal Reserve is coming up at the top of the hour and USD/JPY is at a key resistance.
- The price has dropped back to 109.20 support ahead of the event.
At the time of writing, USD/JPY is trading at 109.26 having travelled between a range of 108.96 and 109.32 on the day so far in anticipation of the Federal Reserve’s interest rate decision.
The Federal Open Market Committee will end a two-day meeting today and make its announcements in the form of a statement at the top of the hour.
Markets expect a dovish hold this afternoon and no change in policy is expected.
However, the messaging and forward guidance will be important for bond yields and the US dollar.
Markets do expect the Fed to mark up its growth forecasts with its quarterly update to its Summary of Economic Projections, due to a healthy combination of accelerated vaccine roll out and aggressive fiscal stimulus.
The Dot Plots will also be important.
Observers expect to see no rate hikes through 2023. However, in the December Dot Plots, five policymakers envisioned a hike in 2023 and if four more shift to that view, then the median would no longer show no hikes, in line with the market’s thinking.
The risk for the dollar is whether Fed’s Chair Jerome Powell is unable to shift market expectations away from rising yields.
If yields rise even higher today, then so too should the US dollar.
Meanwhile, the Bank of Japan starts a two-day meeting Thursday as well.
”Given the massive fiscal stimulus in the pipeline, no change in the major monetary policy settings is expected. However, the policy review may result in some cosmetic changes that are likely to have very little market significance,” analysts at Capital Economics explained.
USD/JPY technical analysis
In the hourly chart above, the price is testing a key resistance zone. On a bullish outcome for the US dollar, then a break of prior highs opens risk to higher highs.
The opposite can be expected on a bearish outcome for the dollar, but there is a strong confluence of the support structure in the rising trendline, the 21-SMA and prior resistance meeting the lows.
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