USD/JPY Consolidating Ahead of the FOMC Meeting

USD/JPY Consolidating Ahead of the FOMC Meeting

posted by on

USD/JPY is trading at the crossroad ahead of tomorrow’s FOMC meeting. In the daily chart we can see the pair consolidating in a descending triangle and price pretty much in the middle of the range of this triangle. Overall the prevailing uptrend is still intact as the moving averages are sloping up in bullish alignment and price has for the most part stayed above the 200-, 100-, and 50-day SMA, although the 50-day SMA is now above price.

USD/JPY Daily Chart 1/27
usdjpy 4h chart 1/27
(click to enlarge)

With the prevailing trend on hold, the key FOMC meeting tomorrow might give the market some direction to either revive the uptrend, or to look for more bearish correction.

Now, let’s move down to the 4H chart.

USD/JPY 4H chart 1/27
usdjpy 4h chart 1/27
(click to enlarge)

The 4H chart shows that USD/JPY has been bearish in 2015, falling from 120.75 down to 115.85 by mid-January. Then, price started to rally, and broke above the falling trendline seen in the 4H chart. However, this rally has stalled and started to consolidate again in a range roughly between 117.20 and 118.90 since last week.

This means that the USD/JPY is ready to revive the uptrend, but is cautious ahead of tomorrow’s FOMC meeting. Why is this such an important meeting?

Anticipating the FOMC Meeting:

Well since the last FOMC meeting, a couple of things have changed.
1) Economic data has been stalling a bit in the US, especially inflation and retail sales. Although employment data was still decent, wage growth was subdued.
2) Other central banks have been becoming more dovish, with surprise rate cuts. The ECB finally announced QE.

These events should put pressure on the FOMC to reconsider the plan to raise rates by mid-2015. It should at least pull back the market’s expectations from some hawkish projections to raise rates by April. But if it also projects a delay in rate cuts, look for some more consolidation in the USD/JPY. That means, it will be tough for the USD/JPY to revive the prevailing uptrend and it is likely to hold below 119, with the 115.56-116 triangle lows in sight.

If the FOMC remains steadfast and gives the impression that it is still going to raise rates by mid-2015, then the USD/JPY has a stronger chance of breaking above 118.90 and 119. In this scenario, there is still the triangle resistance around 120 that might give it some trouble. If doubt still exists, 120 will hold. If the FOMC convinces the market it really is staying on course despite recent events, then USD/JPY has upside risk towards the 121.70, 2014-high.

Previous Post by Author: WTI Crude Oil Drifting Back to Lows on the Year

About Fan Yang

Fan Yang has been a forex trader since 2007. He attained his Chartered Market Technician (CMT) designation in 2010 and continues to trade and serve the Forex community by sharing his market outlooks.
Read previous post:
USD/CAD Rallies After US and Canadian Jobs Data
Stock Market After Hours Movers: Inter Parfums, Park National Corp, MicroStrategy Inc, Sanmina Corp, Rambus Inc  

  Inter Parfums, Inc. IPAR 0.28 pct +5.8 pct - Released its fourth quarter sales, raised guidance.   Park National...