Yesterday, the Fed left interest rates unchanged at 5.25-5.50% as expected but delivered some dovish surprises compared to the hawkish expectations. In fact, although the recognized the recent slowdown in the disinflationary progress in the statement, they also signalled a bigger than expected QT tapering on Treasuries (from $60 billion to $25 billion vs. $30 billion expected) starting in June. Fed Chair Powell has also repeatedly pushed back against a rate hike as he said that they needed persuasive evidence to hike rates again.
After the US Session close, we got a big downward spike in the USDJPY pair with the selloff accelerating soon after and the price falling for almost 500 pips in just half an hour. This looks like a clear intervention and this time the pair took less time to fall for 500 pips because they chose to intervene at a time where liquidity was thinner.
Does this change anything? Not at all. The US data is still strong and the Fed's decision in the big picture is just noise because the data is what really matters going forward. If the US data continues to run hot, especially on the inflation front, then the market will start to price in a rate hike and take the pair into new highs, even if the Japanese continue to intervene.
USDJPY Technical Analysis - Daily Timeframe
On the daily chart, we can see that due to the Japanese intervention, the pair erased most of its gains and settled around the 155.00 handle. From a risk management perspective though, we can see that we have a good support zone around the 152.00 level where we can find the confluence of some key levels and the trendline. If the US data doesn't surprise to the upside tomorrow, we can expect the pair to reach the trendline as traders might want to cover some JPY shorts and wait for another catalyst.
USDJPY Technical Analysis - 1 hour Timeframe
On the 1 hour chart, we can see that we've been getting lots of action around the 155.00 handle with dip buyers fading the Japanese attempts to take the exchange rate below the level. If the price falls back into the 155.00 zone, we can expect the buyers to step in once again to position for a break above the downward counter-trendline and increase the bets into the key 160.00 handle. The sellers, on the other hand, will want to see the price breaking lower without an intervention to pile in with more conviction and target a drop into the 152.00 handle.
What could be the next catalyst?
Today the only notable release will be the latest US Jobless Claims figures, but they are unlikely to change much for the market as we are accustomed to see Initial Claims hovering at cycle lows and Continuing Claims ranging around the 1800K level. Therefore, the data to watch next will be the US NFP and ISM Services PMI tomorrow.
For the NFP, the main focus should be on the Average Hourly Earnings as a resilient labour market with falling wage growth is good for growth and inflation. On the other hand, if we were to get a hot report all around, then the market would take that as hawkish stuff. For the ISM Services PMI, the main focus should be on the prices and employment components. If you recall, we got a strong dovish reaction last time when the prices index dropped to the lowest level in 4 years. If we get another drop or at least not a big change from the current levels, then the market might take that as good news for inflation and even if the headline number beats, it could lead to a positive risk sentiment.