USDJPY shoots higher as the Fed’s projections disappoint the doves

Fundamental
Overview

The USD yesterday weakened
across the board on the Fed’s decision but eventually erased all the losses and
increased the gains as traders digested all the information and realised it was
more hawkish compared to the market pricing.

In fact, the dot plot
showed that the FOMC projected two more rate cuts for 2025 by a narrow majority,
with the rest of officials expecting just one more or even none. Moreover, the
Fed projected just one cut in 2026 compared to three that the market was
pricing before the decision.

Fed Chair Powell then
labelled the rate cut as a “risk management” action given the weakening in the
labour market data. But overall, he sounded pretty neutral even though he understandably
placed more emphasis on the labour market given the two consecutive soft NFP
reports.

Looking forward, it’s going
to be all about the data. Strong data will likely trigger a hawkish repricing
in interest rates expectations and support the greenback. On the other hand,
weak data will likely continue to weigh on it.

On the JPY side, we haven’t
got meaningful changes in the fundamentals. The yen has been rallying mostly on
the back of the dovish expectations for the Fed. Tomorrow, we have the BoJ
decision where the central bank is expected to keep everything unchanged and
the focus will be on their forward guidance.

USDJPY
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDJPY eventually broke out of the range to the downside and dropped
into the major trendline around the 145.60 level. The buyers
stepped in with a defined risk below the trendline to position for a rally into
the 151.00 handle. The sellers, on the other hand, will want to see the price
breaking below the trendline to pile in for a drop into the 143.00 handle next.

USDJPY Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that we now have a minor downward trendline defining the bearish momentum. The
sellers are likely to lean on the trendline with a defined risk above it to position
for a drop into the major upward trendline targeting a breakout. The buyers, on
the other hand, will look for a break higher to increase the bullish bets into
the 151.00 handle next.

USDJPY Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, there’s
not much else we can add here but if we get a pullback from the downward trendline,
we can expect the buyers to step in around the minor support zone at 146.70 to position for a break above
the trendline, while the sellers will look for a break lower to increase the
bearish bets into the major upward trendline. The red lines define the average daily range for today.

Upcoming
Catalysts

Today we get the latest US Jobless Claims figures, while
tomorrow we conclude the week with the Japanese CPI and the BoJ policy
decision.

Watch the video below