USD/JPY Selloff Continues Ahead of the FOMC Meeting – DailyFX

March 20, 2024

USD/JPY, FRB analysis

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Forex News Trading Overview

Yen looks vulnerable ahead of FOMC and all-important dot plot

Ahead of this evening’s important FOMC decision, the yen continued to fall against the dollar in morning trading in London. Although there is no realistic expectation that the federal funds rate will change, market participants have expressed their personal views on the expected rate path for 2024, 2025, 2026, and “long-term rates” at the Fed. I’m looking forward to “Dot Plot”. Run’.

Stubborn inflation in the US has been showing its force in one form or another since December of last year, forcing markets to price in the possibility of just two rate cuts (50 bps) this year, keeping interest rates high for an extended period of time. There is a growing need to maintain it. A relatively strong economy and tight labor market add to the reason financial conditions are not as tight as initially thought.

Fed Dot Plot from December 2023

Source: US Federal Reserve, Refinitiv Workspace

Apart from the Fed dot plot, the market will be looking for clues regarding the timing of the first rate cut as expectations shift from June to July. This is likely to support the dollar and put pressure on the yen. early Tuesday morning,

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USD/JPY rises with good momentum – Yen falls due to Bank of Japan fall

The yen is in a very tough spot ahead of Tuesday’s BOJ interest rate hike after the Bank of Japan issued a very accommodative statement supporting its historic decision to end negative interest rates. Rising interest rates usually provide some form of support for the domestic currency, but given the huge interest rate differential between the yen and other major currencies, there is still a long way to go to reverse the carry trade.

The constructed equally weighted Japanese Yen Index (USD/JPY, pound/yen, euro/yen, Australian dollar/yen)

Source: TradingView, Author richard snow

The USD/JPY daily chart shows a bullish acceleration that has continued from yesterday until today. Having easily broken above 150.00, the pair is currently testing the November swing high of 151.90, but is rapidly approaching oversold territory through the RSI. That means the move could soon pull back slightly before pushing it towards levels not seen in 34 years. The 150 indicator has now turned to support and could come back into play in 2024 if the dot plot does not change (three rate cuts), but we expect the economy to remain strong and signs of stubborn inflation. Taking this into account, the dollar’s weakness is unlikely to last long. It hasn’t disappeared yet.

USD/JPY daily chart

Source: TradingView, Author richard snow

USD/JPY is one of the most liquid FX pairs, and traders are often able to speculate on interest rates through the carry trade phenomenon. Click here for details:

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How to trade USD/JPY

The weekly chart shows a broader, longer-term uptrend channel that continues to make higher highs and higher lows. The chart also highlights that rising levels like this have attracted the attention of Japan’s Ministry of Finance, whose main concern at the time was undesirable volatility. Recent volatility is likely to generate similar dissatisfaction, meaning the threat of currency intervention to push the yen higher could enter the fray again.

USD/JPY weekly chart