A state of instability dominates the performance of the USD/JPY currency pair. This has a tendency to sell operations that pushed the currency pair towards the 147.00 support level and settled around the 147.50 level at the time of writing the analysis. This happened before the US Federal Reserve announced an update to its monetary policy.
The path of Powell's plan will determine the fate of US dollar pairs. Despite any decision of the bank, the discrepancy between the negative interest policy of the Bank of Japan and the policy of the US Federal Reserve will continue to support the upward trend of the dollar-yen pair. The "cumulative policy rate" indicates the total amount of hikes the Fed will provide: even if the pace of delivery slows, there is still a great deal of stress on the outlook. Currently, the market expects a further 135 basis points increase from the Fed by the end of the year, with the fed funds rate peaking at around 5.0% by the first quarter of 2023.
Accordingly, John Shen, currency strategist at Bank of America, says: "The November decision should be supportive of the US dollar in the near term." Shen adds that although the US dollar is at its highest levels in 40 years, the strength "will continue around these levels at the beginning of next year." This indicates that the Euro, the British Pound, and the Japanese Yen will remain under pressure against the US Dollar in the coming weeks. “Inflation, and the central bank’s response to inflation, have been a major positive force for the US dollar, and it is likely to continue to be positive for the US dollar in the near term,” the analyst added.
If the Fed is surprised and indicates a "tighter" stance than is currently expected, the dollar will likely get better support. According to analysts, macro fundamentals such as persistently rising inflation could dampen such expectations that the Fed will slow, keeping the US dollar elevated. Conversely, a cautious surprise from the Fed is likely to help push the dollar lower.
Besides a midweek outing from the markets, it will also pay close attention to the US jobs report, due on Friday. The report is expected to confirm that the US labor market remains in a strong state, as markets look to add 200,000 jobs. A strengthening labor market should keep pressure on wages in the US, ensuring that core inflation readings remain well above the Fed's target of 2.0%. Therefore, this week may be the week that sees the reconfirmation of its dominance over the dollar.
Forecast of the US dollar against the Japanese yen today:
So far, despite the recent selling operations, the general trend of the USD/JPY currency pair is still bullish. As I mentioned before that price stability is above the 148.30 resistance that will support the move towards the 150.00 psychological resistance at any time, especially if the US dollar remains strong. There are expectations of raising US interest rates and the US economic performance is outstanding.
- I still prefer selling the currency pair from every bullish level as the Japanese intervention will continue every time the USD/JPY moves past the 150.00 high.
- On the downside, the first break of the general trend for the dollar-yen pair will stop on moving below the support level 145.70.
- Caution should be exercised until the markets react to the decisions of the US Central Bank.
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