Fundamental Overview
The USD got a boost from the FOMC decision as the market perceived it as more hawkish than expected. Overall, apart from some slight tweaks, the Fed matched the market’s pricing. Nonetheless, the market reacted in a big way pushing Treasury yields higher and giving the USD a tailwind.
The data is what really matters now as it will decide what the Fed is going to do. They switched their focus on inflation again, so it will likely take just one soft CPI report in January to see the market reacting in a dovish way sending Treasury yields and the US Dollar lower.
On the JPY side, the BoJ left interest rates unchanged as expected but Governor Ueda delivered a less hawkish than expected presser. In fact, he placed a great deal on wage data to decide on the timing of the next rate hike and added that the trend will become clearer in March or April.
This made the market to price out the probabilities for a hike in January and push back once again to the next meeting which is scheduled for March.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY extended the rally into the 158.00 handle following a slightly more hawkish FOMC decision and a more dovish BoJ announcement. This was a deadly mix for the pair as the bullish momentum picked up strongly.
From a risk management perspective, the buyers will now have a better risk to reward setup around the trendline although we will need some weak US inflation data to push the pair so much lower.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price is now testing the previous high. This is where we can expect more aggressive buyers stepping in with a defined risk below the level to position for an extension into the 160.00 handle next. The sellers, on the other hand, will want to see the price breaking lower to start targeting the minor upward trendline around the 155.00 handle.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more clearly the price reacting to the 156.75 level as the buyers pile in. There’s not much else to add here as the buyers will look for a bounce and the sellers for a break lower. Watch out for the US PCE report today as a miss could trigger a pullback in the pair. The red lines define the average daily range for today.
Upcoming Catalysts
Today, we conclude the week with the US PCE data.
