BK Hot Chart – USD/JPY Upside
For the time being USD/JPY appears to be stuck within a narrow 117.20 to 118.85 range but from a fundamental and technical perspective, the uptrend remains intact. As the Northeast hunkers down for a major snowstorm, forex traders around the world are turning their eyes to the upcoming Federal Reserve monetary policy announcement. While recent stimulus from the ECB and other central banks gives the Fed more leeway, we do not believe they will alter their forward guidance having just changed it in mid-December. If you recall, last month, the Fed replaced its vow to keep rates near zero for a “considerable time” with a pledge to be “patient” on the timing of the first rate hike. At the time, this was viewed as such a hawkish shift that it drove USD/JPY from a low of 116.30 to a high of 120.80 in a matter of days. There has been a few weak data points since the last Fed meeting, most notably retail sales and average hourly earnings but this follows many months of positive economic surprises. The Fed also believes that the decline in oil prices will pick up the slack. If they dialed back their hawkishness, it would risk undermining credibility. The next big meeting is in March so there’s no need to rush any changes. If we are right and the Fed provides no fresh insight at this week’s meeting, their tightening bias will make the dollar more attractive and drive USD/JPY higher.
Technically, there is short-term support at 117.15 and more significant support at 115.57. The 61.8% Fibonacci retracement of the 1998 to 2011 decline at 120.18 will cap gains for the time being.
