- Last week, the yen gained over 2% against the US dollar.
- The BoJ could raise rates by 10 bps.
- The Fed is likely to keep rates unchanged.
The USD/JPI outlook shows a slight bullish move as the pair recovers ahead of monetary policy meetings in Japan and the US. Investors are eyeing a potential interest rate hike by the Bank of Japan on Wednesday. Meanwhile, expectations suggest the Fed will keep rates on hold.
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Last week, the yen gained over 2% against the US dollar amid increased expectations for a BoJ rate hike. Investors gained confidence in the hike due to increased pressure to support the weak yen. As a result, there is a 63% chance that the Bank of Japan will announce a 10 bps rate hike tomorrow.
However, experts warn that there is a risk that the central bank could disappoint. The BoJ has surprised the markets many times. If there is no rate hike tomorrow, it could be a dark day for the yen.
Meanwhile, traders also expect the BoJ to announce plans to taper bond purchases. Such an outcome would show confidence that the Japanese economy is on more stable ground, which could push the yen higher.
On the Fed side, investors will focus on economic projections and Powell’s message. At its last meeting, the Fed forecast one interest rate cut in December, leading to a drop in September expectations. If policymakers maintain this outlook, rate cut bets will fall again, boosting the dollar. However, market participants expect a more favorable outlook given the recent cooler inflation. Specifically, policymakers could signal the first cut in September.
USD/JPI Key Events Today
- US CB Consumer Confidence
- US JOLTS Job Openings
USD/JPI Technical Outlook: Morning Star pattern ignites buyers
On the technical side, the USD/JPI price has broken above the 30-SMA, indicating a change in control from bears to bulls. The RSI is also showing a change in sentiment, after breaking above 50. This new move comes after the downtrend was paused at the 152.01 support level.
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At this point, the price has formed a Morning Star candlestick pattern, signaling an upcoming bullish reversal. Since then, the bulls have taken control and broken above the 30-SMA. However, they face a solid barrier at the key level of 154.80. A break above would open the way to the next resistance at 158.02.
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