USDJPY: BOJ & Fed Meetings On Watch
BOJ Tonight
A busy week for FX markets with three big central bank meetings this week starting with the BOJ overnight tonight, the Fed on Wednesday and the BOE on Thursday. Traders have recently downgraded their hawkish BOJ expectations in line with signals from the BOJ recently. As such, the market is now widely expecting the bank to hold rates steady tomorrow, creating some upside risks if the bank strikes a more hawkish tone again in its forward guidance. Additionally, the bank will release updated economic forecasts with inflation likely to be revised higher amidst the fall out from the Iran war. If inflation forecasts do rise and the bank sounds more hawkish in its tone, JPY could start to firm up more near-term. However, the extent of any rally will depend on what we hear from the Fed mid-week.
FOMC Expectations
Going into the FOMC, USD risks appear skewed to the upside. While no change in rates is expected, we are likely to hear the Fed turn increasingly hawkish. Last time around we learned that Fed members expressed clear concern over inflationary risks linked to the Iran war and saw the potential for rate hikes as a possibility if inflation continued higher. This dynamic can only have developed further given the high US inflation reading we’ve seen since that meeting and with oil prices still elevated. As such, the Fed should sound more hawkish on Wednesday, at least warning of the need for rates to stay high for longer. If the BOJ strikes a less hawkish tone tomorrow and the Fed is seen sounding more hawkish, this could propel USDJPY higher near-term.
Technical Views
USDJPY
For now, USDJPY remains in a block of consolidation above the 157.85 level, still within the bull channel. While this level holds, focus is on a push higher towards the 161.95 level next. If we break lower, however, focus turns to 154.65 next with the bull channel lows there also.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.