USD/JPY possible scenarios on Fed rate decision
Fawad Razaqzada July 31, 2019 10:15 AM
One of the markets we are watching closely today is the USD/JPY ahead of the FOMC rate decision and Powell’s press conference. The USD/JPY was trading around the 108.50 level at the time of writing. Rates have stabilised here over the past several weeks following a correction that started towards the end of April. What happens next depends almost entirely on the Fed’s decision on interest rates and forward guidance.
- If the Fed is deemed to be less dovish than anticipated (a 0.25% cut + hawkish forward guidance), then the USD/JPY could easily break higher. It could take out interim resistance at 109.00 and head towards more significant levels at 109.50 and possibly even 110.25 – levels which were previously support.
- However, in the event of a dovish surprise (a 0.25% cut + dovish forward guidance, or 0.5% cut) then the USD/JPY could fall sharply, and break below support at 108.25/35. In this scenario, I wouldn’t be surprised if rates go on to make new lows on the month or even year.
Overall, it is reasonable to expect that the FOMC will not cut more than 25 basis points today, which should disappoint Trump and those looking for a deeper rate cut. If so, the dollar could very well go up in terms of immediate response given that this is already priced in. The greenback could remain supported for a while if the Fed also signals a disinclination to ease further in the coming months. This may well be the case given that economic data in the US has been rather good, even if inflation has remained stubbornly below the 2% target.
Source: Trading View and FOREX.com
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.