Waiting for US Central Governor

USD/JPY got a boost from the hawkish FOMC minutes, as policymakers confirmed room for further tightening later this year.

  • Fed Chairman Powell reiterated that they will not be satisfied with avoiding inflationary pressures, which translates to more interest rate hikes in the coming months.
  • The USD/JPY pair’s upward rebound gains reached the 134.77 resistance level, before settling around the 131.50 support at the beginning of this week’s trading.
  • The decline of the US dollar came ahead of expected statements today by US Central Bank Governor Jerome Powell.

Meanwhile, the US Nonfarm Payrolls report came in stronger than expected, confirming that the central bank can afford to increase US interest rates without worrying about hampering job growth.

The Japanese yen is still in a weaker position since the Bank of Japan has been busy making bond purchases. This indicates that the central bank is far from tightening monetary policy or slowing the pace of easing and is likely to keep downward pressure in place. US CPI data is due later this week and the strong readings will confirm the Fed’s strong inflation outlook. On the other hand, weaker-than-expected results may send the dollar lower as it will cast doubts over whether the Fed will be able to maintain the pace of tightening.

Dollar expectations against the Japanese yen today:

USD/JPY price recently breached a bearish trend line on the short-term time frame, which indicates that a reversal from the uptrend is imminent. Since then, the price has retreated back to the previous resistance level which may now hold as a floor. This is in line with the 61.8% Fibonacci retracement level around 131.50, a minor psychological sign. If this is enough to keep losses in check, USD/JPY could resume the climb to the swing high of 134.77 or higher.

However, keep in mind that the 100 SMA is still below the 200 SMA to indicate that the general trend is still bearish and that selling may continue. Stochastic also has room to head lower before indicating oversold or exhaustion levels among the sellers, so the bearish pressure may continue.

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