- The US Federal Reserve finally cut borrowing costs by 50 basis points after months of market speculation.
- Powell said the big cuts were meant to keep unemployment under control.
- At its policy meeting on Friday, the BoJ is likely to keep rates unchanged.
The USD/JPI outlook favors growth, although the pair has fluctuated a lot since the FOMC policy meeting. The yen initially strengthened against the dollar before falling sharply as market participants took profits. Meanwhile, markets are gearing up for the Bank of Japan’s policy meeting on Friday.
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The US central bank finally cut borrowing costs on Wednesday after months of market speculation. The Fed cut interest rates by a significant 50 basis points, above forecasts of 25 basis points. Before the meeting, market participants estimated a 65% chance of such an outcome. Meanwhile, economists predicted a smaller cut. Therefore, after the meeting, the dollar fell because traders did not fully appreciate such a move. However, the decline was short-lived as it recovered as traders locked in their yen.
The Fed took its first step toward lowering interest rates, showing increased confidence among policymakers that they have tamed inflation. Moreover, Powell said the big cuts were meant to keep unemployment under control. Lower borrowing costs are likely to hurt the dollar. However, they will also boost economic growth, which will eventually reverse the downward trend.
On the other hand, the long-term outlook for the yen remains bright. Bank of Japan policymakers have recently made hawkish remarks in favor of further interest rate hikes. At its policy meeting on Friday, the BoJ is likely to keep rates unchanged. However, the market’s focus will be on the messages for future policy moves. More hawkish remarks will support the yen.
USD/JPI Key Events Today
USD/JPI Technical Outlook: Bulls meet strong barrier shortly after reversal
On the technical side, the USD/JPI price made a new high near a solid resistance zone. The trend recently reversed after the RSI made a bullish divergence. The bulls took control when the price broke above the 30-SMA and the RSI started trading in bullish territory above 50.
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However, the new rally encountered a solid obstacle consisting of 0.5 Fib and 143.01 key resistance level. Price probably needs a strong catalyst to break through this zone. A break above would allow the bulls to revisit the key resistance level of 145.00 and continue the uptrend.
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