USD/JPY FORECAST:
- USD/JPY has lacked directional conviction in recent days, with prices compressed between support and resistance
- Volatility, however, could pick up next week, as the FOMC decision could alter current market dynamics
- No change in monetary policy is expected, but the Fed may embrace a more dovish position on the back of significant progress on the inflation front
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USD/JPY has lacked directional conviction in recent sessions, moving between overhead resistance at 148.80 and horizontal support at 147.40. Next week, however, could see more significant moves, as the Federal Reserve’s decision should to inject heightened volatility into financial markets.
Focusing on the Fed’s announcement, no monetary policy changes are expected at the January gathering, but the institution could remove the tightening bias from the post-meeting statement and embrace a more neutral message following encouraging progress on the inflation front.
In addition, traders should not find it surprising if further discussions about the overarching criteria for reducing rates unfold at the latest conclave. In that sense, if Powell signals that deliberations have reached a more advanced stage, markets may move to price in a March rate cut with greater probability – a bearish outcome for the U.S. dollar.
On the flip side, if the central bank retains a hawkish tone for fear that relaxed financial conditions could reignite inflationary pressures and refrains from teeing up a rate cut for the near term, we could see yields moving higher across the board, a scenario poised to support USD/JPY.
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USD/JPY TECHNICAL ANALYSIS
After the sell-off earlier in the week, USD/JPY has managed to bounce off support at 147.40, which corresponds to the 100-day simple moving average. If gains accelerate in the coming trading sessions, resistance appears at 148.80/149.00. On further strength, all eyes will be at the psychological 150.00 level.
In the event of a bearish reversal, the first key floor to watch emerges at 147.40, as mentioned above. While the bears may have a hard time driving prices below this threshold decisively, a successful breakdown could usher in a pullback towards 146.00, followed by 145.50.
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| Change in | Longs | Shorts | OI |
| Daily | 0% | 0% | 0% |
| Weekly | -2% | 1% | 0% |