USD/JPY Short Term Technical Forecast – Neutral
The Japanese yen’s rally against the dollar appears to have stalled in recent days as the market looks for further signals from the upcoming US Federal Reserve Open Market Committee meeting.
USD/JPY is at the high support of the May low of 126.30. The upside continues to hold at the mid-January high of 131.60, keeping the pair in range.
IG’s client sentiment data shows that 41% of traders are net long USD/JPY, while 59% of traders are short the pair. Traders’ net-longs are up 2% from last week, while traders’ net-shorts are up 11% from last week.
While the BOJ remains committed to its current ultra-accommodative monetary policy stance, the general perception is that the Bank of Japan is heading for a firmer stance on accelerating inflation to some degree, meaning it’s a question of when and if not to support the JPY. In contrast, the US Fed is expected to slow rate hikes. According to a recent fund manager survey, JPY appreciation is now the highest since January 2007 (the last BOJ rate hike cycle).
While the market widely expects the Fed to hike rates by 25 basis points to 4.5%-4.75% on Wednesday, the accompanying statement will be closely watched, especially if the Fed signals that it is reaching an inflection point in its rate hike cycle.
If the Fed is more hawkish than expected, it could weigh on the dollar. The futures market currently expects rates to rise to 4.9% on signs that US inflation may be peaking.