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  • USD/JPY captures a bid on Friday’s close despite Brexit related flows.
  • US yields consolidating around highs support the bullish case although much depends on FOMC/US GDP this week.  

US risks are  strong on the back of a large early year US tax cut and aggressive repatriation of overseas earnings which is helping US growth and the stock market – Subsequently, USD/JPY has avoided the broad capitulation in the greenback. However, USD/JPY bulls did not manage to get over the line on Friday due to flows related to Brexit  risk that knocked the socks off the GBP/JPY cross,  dropping from 149.69 to test 147.00 that held. Subsequently, USD/JPY’s drop  from 112.87 targetted the 21-D SMA down at 112.44.  USD/JPY ended NY at 112.59 and within a day’s range of 112.50/78. The move has taken the pair well back inside of the range that has resulted in a head fake on the break of the rising wedge’s resistance.

FOMC/BoJ and trade risks

On balance, the FOMC  all boils down to their median forecast and dots. However, the  event  may not have too much impact  if there are concerns about trade wars and a slow down in EMs while the domestic outlook is positive and the dots will show further tightening ahead. If the interest rate forecast, growth outlook and CPI projections remain unchanged, markets might wish to revive the twin deficit concerns again and punish the dollar for it. Also, the U.S.-Japan trade talks and Trump/Abe’s summit is on the 26th where their  meeting will be held on the sidelines of Abe’s visit to New York to attend a United Nations General Assembly. We also get the press conference from BoJ Governor Haruhiko  Kuroda as the latest BoJ minutes are released on Wednesday.  

USD/JPY levels

  • Valeria Bednarik, chief analyst at FXStreet explained that the pair retains a positive stance according to technical readings, although if risk aversion persists, seems unlikely that the pair could extend its gains:

“In the daily  chart, it remains above moving averages, while technical indicators lack directional strength but remain well into positive territory. Shorter term, and according to the 4 hours chart, the risk is also leaned to the upside, as technical indicators are trying to bounce from around their midlines while moving averages maintain their upward slopes well below the current level. August high at 112.14 is the immediate support, while the pair could regain its upward momentum only above 113.17, July’s monthly high.”