Send me real-time posts from this site at my email
Fan Yang

After Fed Holds Rate, Market Pricing in Potential Rate Cut by Fading USD/JPY; BoJ up Next

Here's a quick summary from CNBC regarding today's FOMC announcement:

  • The Federal Open Market Committee votes 9-1 to keep the benchmark rate in a target range of 2.25% to 2.5%.
  • The action sets up a possible confrontation between Fed Chairman Jerome Powell and President Donald Trump, who has been pressuring the Fed to cut rates.
  • The Fed drops the word “patient” in describing its approach to policy.
  • The central bank also leaves the door open somewhat to future cuts.
  • Eight members favor one cut this year, while the same number votes in favor of the status quo and one still wants a rate hike. Powell says in a press conference some officials believe the case for accommodation has “strengthened.”

Most market watchers expected the Fed to hold. At the moment, the average expectation is that there won't be a rate cut in 2019. However, many will focus on the one dovish statement from FOMC chairman Jerome Powell: "Many participants now see the case for somewhat more accommodative policy has strengthened"

The USD/JPY fell heading into the FOMC announcement, and continued to be pressured after the press conference:

USD/JPY 1H chart

(click to enlarge)

Cracking the 108 Support:
- We recently saw  USD/JPY come down to the 108 support and suggested it wouldn't hold long: Will USD/JPY Hold the 108 Support Area? Probably Not For Long
- Price has not clearly broken below 108 yet. We should see if price can clear below 107.50 by the end of the week.
- If so, we might see further downside towards the 104.60 area. 
- However, I think price should start finding support around 105. The market is pricing in a rate cut, and it might over extend USD-weakness. 
- After all the Bank of Japan is also dovish. Here's a quick excerpt from reuters:

TOKYO (Reuters) - The Bank of Japan is widely expected to keep its ultra-loose monetary policy unchanged on Thursday but signal its readiness to ramp up stimulus if global risks threaten the country’s economic expansion, nodding to the widening fallout from the U.S.-China trade war.

- In fact, if price fails to fall below 107.50 and climbs back above 108.25, we should consider the 108 area maintained. 

USD/JPY Daily Chart

(click to enlarge)

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue