The pound, the euro, and other major currencies rose against the US dollar in initial response to the Federal Reserve's decision to raise US interest rates by 25 basis points. Therefore, the bears found a strong opportunity to push the USD/JPY currency pair towards the support level at 130.75, its lowest in more than six weeks, and to settle around the level of 130.95 at the time of writing.
The statement accompanying the Fed's decisions indicated little concern about the recent stresses in the US financial system. In what was interpreted as a "pessimistic" development, the Fed's statement removed wording about the need for "continued increases" in interest rates. Instead, the Fed says "some 'further tightening' might be appropriate."
The Fed's new set of forecasts, which detail where FOMC members see US interest rates moving over the coming months, has revealed the possibility of another hike before the cycle ends. Neil Pearl, chief investment officer at Premier Miton Investors, says: “The US Federal Reserve is fighting inflation, avoiding recession and making sure the financial system remains safe. That's quite a challenge, and unsurprisingly, they softened their stance on inflation and went up by 25 basis points. This was accompanied by comments indicating that further emphasis may be necessary, although this language is softer than last time.
In particular, the analyst cites the Fed pointing out that while the banking system is sound, there is a risk to growth from tightening credit conditions. "This seems like a pragmatic approach on the part of the Fed, an approach that will calm nerves and show that it cares about all the risks that are out there right now," he added.
Forecasts of the US dollar against the yen today:
- The bearish momentum of the USD/JPY currency pair is getting stronger.
- Moving towards the psychological support level 130.00 will support that, and then to the support 129.10.
- This will move the technical indicators towards strong oversold levels, from which it is possible to return to thinking of buying a pair currencies.
On the other hand, and for the same time period, the bulls will have an opportunity to control if the currency pair returns towards the resistance level of 134.00 again. Today, the currency pair will be affected by the release of the US weekly jobless claims, new home sales and recent central bank signals.
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