USDJPY Plunge Deepens Ahead of FOMC
Yen Strength Continues
USDJPY remains under heavy selling pressure today with the pair now trading at levels last seen in July 2023. Increased expectations of more aggressive action from the Fed this week is keeping USD well-offered today. Given the hawkish BOJ expectations driving the Yen, divergence between the two central banks remains firmly bearish for the pair which is now down almost 14% from YTD highs. Falling US inflation and double tightening action from the BOJ at the July meeting helped spark the sell off which now threatens to extend further if the Fed delivers a deeper rate cut this week.
FOMC Expectations
Looking ahead to Wednesday, pricing for a deeper .5% cut has now jumped to 60% having been just above 10% at the start of last week. With annualised US inflation seen cooling again to 2.5% from 2.9% and the jobs market still trending lower, traders now sense a greater likelihood that the Fed begins its easing program with a deeper cut. If seen, the market reaction in USD will likely depend on the extent to which the Fed signals it will pursue further cuts beyond this week. A clear-cut dovish tone will be needed to keep USD sold. On the other hand, if the Fed cuts by a smaller .25%, this could well spark a short-covering rally in USD given the built-up level of dovish expectation in the market. Similarly, if the Fed refrains from giving a clear signal on further easing.
Technical Views
USDJPY
The sell off in USDJPY has seen the pair breaking down through the bull trend line and below the prior 2024 lows. Price is now testing beneath the December 2023 lows at 140.50. With momentum studies bearish, focus is on a test of the 137.36 level support next. Outlook stays bearish while below 146.81. In the Signal Centre today we have a sell limit at 142.50 suggesting a preference to fade any bounce any stay short.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.