- The USD/JPY initially fell during trading on Wednesday as traders awaited the Federal Reserve announcement.
- As per expected, the Fed rose interest rates to 4%, which in and of itself was pretty much priced into the market.
- However, the Federal Reserve changed a little bit of the statement, and people got ecstatic out there for a minute when it came to risk appetite.
That being said, during the press conference, Jerome Powell had mentioned multiple times how it was far too early to start thinking about pausing interest rate hikes, or even going sideways. He also stated that the highest rate will more likely than not be higher than anticipated, setting up the stage for tight monetary policy coming out of the United States for the foreseeable future.
Be Cautious With the Position Sizing
It’s still a fluid situation, but at the end of the day, not much changed as far as the trend is concerned. The Bank of Japan will continue to flood the market with yen, as though by unlimited bonds. By doing so, it continues to put pressure on the Japanese yen, and it makes a certain amount of sense that the US dollar would benefit from this, not only due to the fact that the yen is falling, but the fact that the US dollar continues to strengthen in general due to the interest rate differential. Whether or not the Fed is slowing down is a completely open question, but lately there has been very little out there to suggest that they should be doing so. Because of this, I think you continue to buy dips, and I would also pay close attention to the 50-Day EMA just below that is sitting right above the ¥144 level.
This market has been very noisy, but that should continue to be the case, and therefore you need to be cautious with the position sizing clearly there’s only one direction you should be trading this market in. The ¥150 level because a little bit of a headache, and of course, the Bank of Japan has intervened more than once, but they also are struggling to get a grip on this overall trend, and therefore I think they have to make a significant decision sooner or later. They can either keep rates down or defend the currency, not both.
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