USD/JPY: All set and ready for the FOMC

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  • All quiet ahead of the FOMC today, trading within tight range.
  • Technically, according to the 4 hours chart, the neutral stance persists.

USD/JPY has started out in Tokyo sideways, moving in a range between 108.53/60. Risk on markets sent the yen down while U.S. yields retraced from lows that followed a dovish rhetoric from  ECB’s Draghi on optimism over a trde deal between China and the US. 

First of all, Draghi’s speech announced that the ECB will ease policy further if it feels its inflation target is under threat. When coupled with what is expected to be a dovish outcome from the Federal Reserve tonight, global yields too up the pain. However, later in the day, news came that Trump and Xi will meet at G20 next week. Subsequently, USD/JPY rallied from the 108.00 London lows to 108.68  – Trump tweeted that he would be having an “extended meeting” with China president Xi at the G20 in Japan. This was followed up by Chinese state media and confirmed. However, the pair steadied around 108.45, by the close, hardly changed on the day. 

As for yields, the US 10 years initially fell from 2.10% to 2.01% on the Draghi comments, but later retraced to 2.06% after the trade talk noise. Analysts at Westpac noted that markets are pricing a 100% chance of a cut by the July meeting, with a total of three cuts priced by December. “News broke that the White House in February explored removing Fed chair Powell from his position, and that may have contributed to a volatile session for interest rates,” the analysts added. 

FOMC outlook

Federal Reserve Preview June 18-19 FOMC: Proto-Easing

Notwithstanding the positive condition of the American economy the Fed has been deliberate in signaling its angst and, without saying so, preparing the markets for a change in policy…

Fed communication has an inherent risk in that as the governors’ views become clearer the policy is rapidly priced into the market. Treasury rates have been falling for eight months.  Markets expect a clearer path to a July rate cut.

Joseph Trevisani, senior analyst at FXStreet explained.

USD/JPY levels

Valeria Bednarik, the Chief Analyst at FXStreet, explained that technically, the pair remains without signs of directional progress:

“Although, the bearish case is firm in place in the daily chart, with a bearish 20 DMA capping the upside around a Fibonacci resistance at 108.90. Shorter term, and according to the 4 hours chart, the neutral stance persists, as technical indicators have turned marginally higher but hold within neutral levels, while the price keeps hovering around a flat 20 SMA, and contained by a bearish 100 SMA.”

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