Dollar/yen slipped 1.4 percent last week, its sharpest decline in 2019. The yen took advantage of an unusually dovish Federal Reserve, which led to investors snapping up the safe-haven Japanese currency. Traders should keep a close eye on U.S. Final GDP for the fourth quarter, which could be this week’s market-mover.
USD/JPY fundamental movers
Last week’s Federal Reserve policy meeting shook up the currency markets and boosted the yen. The Fed’s rate outlook indicated that a majority of policymakers expected rates to stay on hold until 2020. This was in sharp contrast to the previous quarter’s forecast, in which the FOMC projected two hikes in 2019.
The rate statement was blunt, stating that economic activity “has slowed”. Policymakers singled out slower growth in household spending and business investment and noted that inflation has decreased due to lower energy prices. The Fed also announced that it would stop reducing its $4 trillion balance sheet by $50 billion a month. This move is a loosening of policy and is intended to stimulate the economy. The new Fed forecast projects GDP growth of 2.1%, down from 2.3% in December.
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Key news updates for USD/JPY
USD/JPY Technical Analysis
With USD/JPY posting sharp losses, we start at lower levels:
113.15 was a swing high back in July.
112.73 was an important resistance line in October.
112.25 is the next resistance line.
111.65 was a swing low in October, Close by, 111.40 was another swing low in October.
111.15 remains relevant and starts the week as a weak line. Late in the week, the pair broke below 110.40 (mentioned last week).
Close by, 109.35 was a cushion in mid-July.
108.70 was a cushion early in the summer and 108.10 a swing low in late May.
107.50 capped the pair in early April.
105.66 is the final line for now. It has held in support since early April.
USD/JPY Daily Chart
I am bullish on USD/JPY
A sharply dovish Fed was what the doctor ordered for the yen, but it’s questionable if the rally will continue. The U.S. economy is in much better shape than that of Japan, and the slowdown in China continues to weigh on the fragile Japanese economy.
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