FOMC, BoJ to confirm or deny recent USD, JPY moves

Key developments in FX today

• The US dollar remains relatively firm after a wild, blowout rally in USDJPY to close last week, a rally driven by a story related to possible new Bank of Japan measures at the bank's meeting this Thursday. USDJPY settled back a bit lower today, but the consolidation was gathered up well ahead of the next support zone around 110.00. The significant rally in USDJPY and especially GBPJPY over the last week and more has significantly damaged the former downtrends in these key JPY pairs. But we’ll need to hear what the BoJ has to say and whether a lack of new policy impetus can see JPY doubters maintaining the upper hand. Note the USDJPY and GBPJPY charts below.

• EURUSD was down through the nominally important 1.1250 area, but that move failed to drive further downside momentum as the market likely wants a look at the Federal Open Market Committee meeting's statement on Wednesday before committing to a USD view.

• The US dollar has had varying success versus the commodity dollars in recent sessions.

• Elsewhere, the Swiss franc weakness is notable, though EURCHF has yet to work its way out of the bigger range extending just above 1.1000. The likely driver there is a recent focus on generally higher interest rates and significant relief in sterling as Brexit odds have lengthened.

 

EURUSD

EURUSD has teased below the 1.1250 nominal downside pivot area, but has yet to confirm the reversal setup, likely as traders want to see the FOMC statement this Wednesday before committing further on USD direction.

 

USDJPY

USDJPY rallied very sharply last week, likely driven to some degree by the very extended long-JPY speculative positioning as much as due to the importance of what BoJ sources are indicating in the way of potential policy moves at this Thursday’s BoJ meeting. But the rally has pierced the first key resistance line at 110.75/111.00, which now serves as support, followed by 109.75/110.00. The next area of interest is the Ichimoku cloud coming in around 112.50 over the next few days.

 

GBPJPY

Note that the GBPJPY rally has come from new lows and has taken this pair nearly all the way to the prior resistance and to the cusp of the Ichimoku cloud – possibly heralding a significant pause to the huge downtrend from the 195+ levels of 2015. The rally may not signal immediate further strength, rather it suggests a neutralisation of the bearish threat. Stay tuned after this Thursday’s BoJ meeting.

 

NZDUSD

The kiwi has been the weakest of the commodity dollars against a firming USD. The technical reversal this time around is a bit more profound than recent, half-hearted reversal attempts, though we’ll likely need to see broader USD strength after the FOMC meeting this Wednesday (and NZD weakness after the Reserve Bank of New Zealand meeting just three hours after the Fed meets) to see a fresh bear trend develop. Technically, a follow-up move down through 0.6760 would brighten the prospects for bears.