The Federal Reserve yesterday surprised the market by maintaining interest rates at 5.00-5.25% but revising the projected terminal rate in the Dot Plot by adding 50 basis points. The Fed's decision to pause at this meeting was aimed at gathering more economic data before considering another potential rate hike in July. This approach is supported by the weaker details in the latest NFP report and further disinflation in the latest CPI report, although the core readings remain persistently high.
During the press conference, Fed Chair Powell mentioned that the July meeting is "live," although he did not make any firm commitments. The USDJPY rallied on a more hawkish Fed. Overall, this demonstrates the Fed's readiness to take additional steps to address inflation, while emphasizing that their actions will depend on the economic data.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY broke out of the blue box and extended the rally towards the 142 level. The buyers kept leaning on the red 21 moving average in the past days and eventually succeeded as the Fed delivered a more hawkish than expected decision. The 142.17 resistance will be key as a break above it would open the door for a bigger rally into the 150 level. The sellers are likely to defend the resistance and position for a bigger pullback into the upward trendline.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the USDJPY rally keeps diverging with the MACD right when it’s coming near the 142 resistance. This is generally a sign of weakening momentum often followed by pullbacks or reversals. The next move will be most likely decided by today’s economic data, but on the technical side the sellers will be looking to short at the 142 resistance, while the buyers will want to long at a pullback into the 140.38 support.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely yesterday’s breakout and the subsequent rally. From a risk management perspective, the buyers should wait for a pullback into the support turned resistance at 140.38 where they can enter with a better risk to reward ratio and target the 142 resistance. The sellers, on the other hand, will either wait to enter at the 142 resistance or pile in more aggressively if the price falls below the 140.38 support.
Today, we will see the US Jobless Claims and Retail Sales reports. Tomorrow, the focus will shift to the University of Michigan Consumer Sentiment survey. Another big miss in Jobless Claims could potentially raise the market concerns on the labour market, leading to a more dovish rates pricing that should send Treasury yields lower and the USDJPY with it.
Conversely, if the data beats expectations, it should keep the tight labour market view and thus lift Treasury yields and the USDJPY pair. Additionally, the market will be interested in in the decrease in long-term inflation expectations in tomorrow's UMich report. A higher reading could suggest a potential de-anchoring of inflation expectations going on, which may raise concerns and lead to a more hawkish pricing.