Japanese Yen Outlook: USD/JPY Scans 130 Ahead of Fed

USD/JPY ANALYSIS & TALKING POINTS

All eyes on U.S. economic data and Fed rate decision.Will the Fed stick to its hawkish rhetoric？Technical analysis suggestive of turnaround in USD/JPY.

JAPANESE YEN FUNDAMENTAL BACKDROP

Recent movement on the USD/JPY currency pair highlights the cautionary approach taken by market participants as the Federal Reserve interest rate decision looms (see economic calendar below). It seems as if the “dont fight the Fed” narrative is creeping back into market pricing after forward guidance and Fed officials were largely dismissed from their hawkish views. The 5% terminal rate for 2023 has been a contentious issue largely due to softening inflation in the U.S. but with a robust labor market and inflation being far off their target level, there may be room for an upside surprise later today. Some key data points are expected prior to the rate decision including ISM manufacturing PMI and ADP employment changes but focus will likely reman on the post-announcement press conference.

The likely scenario will be a 25bps (as currently priced in) but with Fed Chair Jerome Powell refuting rate cuts later in the year and continue on the path of “fighting inflation” while attempting to maintain their credibility.

Daily USD/JPY price action now trades at the top (resistance) of the recent downward channel coinciding with the psychological level. Positive/bullish divergence remains in play and could see bulls support a move upward – dependent on Fed outcome.

116.34115.60 – 61.8% Fibonacci level

130.00IG CLIENT SENTIMENT HESITANT

IGCS shows retail traders are currently net short on USD/JPY, with of traders currently holding short positions (as of this writing). At DailyFX we take a contrarian view on sentiment which suggests further upside on the pair however, the net change in long and short positioning results in a tentative disposition.