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The Magnetism of 110 USD/JPY
Thanks to Wednesday’s hawkish FOMC statement, the U.S. dollar traded sharply higher against the Japanese Yen and tonight, if the Bank of Japan admits that they may not reach their 2% inflation target, we could see a further slide in the Yen that could take USD/JPY as high as 110. The trade in FX still centers on policy divergence and stubbornly low inflation combined with the loss of momentum in Japan’s economy leaves the door open to additional BoJ easing. At the same time, the Fed made it clear this week that they feel confident about the outlook for the U.S. economy and remain on track to raise interest rates in mid 2015. This divergence in monetary policy should drive USD/JPY to 110 but until U.S. rates start to see more upside, we don’t expect significant gains beyond 110.
Taking a look at the daily chart of USD/JPY, the 6 year high of 110.09 is the next big resistance level for the currency pair and beyond that 115. On the downside, 108 is support.