USD/JPY remained supported on Monday ahead of an important week for central banks. In the past two weeks, the Bank of England (BoE) and European Central Bank (ECB) used their time in the spotlight by keeping monetary policy unchanged, signaling a wait-and-see approach to the continuing saga of post-Brexit consequences. The BoE was expected to implement new stimulus measures as a response to Brexit, but surprised markets by opting for inaction, sending sterling temporarily higher. The ECB was not expected to announce any further easing for the time being, and fulfilled those expectations. Both central banks, however, are expected to introduce more easing plans in the coming months.
This week pivots from Europe to the US and Japan, as the FOMC rate decision from the Federal Reserve will be announced on Wednesday afternoon while Friday will see the release of the Bank of Japan’s (BoJ) monetary policy statement.
While the Fed is not expected to raise interest rates this time around, it could very likely display a more hawkish tone than it had previously due to a spate of better-than-expected US economic data in the past several weeks that have helped boost the perceived probability of a rate hike this year. Also potentially contributing to a more hawkish tone should be the fact that concerns over the impact of Brexit on the US economy have diminished dramatically, as the US equity markets have recently hit progressively higher all-time highs.
Meanwhile, there are expectations that the Bank of Japan will institute more easing measures on Friday, in-line with assurances made by Prime Minister Shinzo Abe within the past few weeks. Despite recent reports that the BoJ might opt for inaction along the lines of the BoE and ECB, Abe’s strong push for further stimulus is likely to lead to some central bank action.
The dynamics of these two major policy decisions this week should have major implications for the USD/JPY currency pair. Since its post-Brexit lows around the key 100.00 psychological level, USD/JPY has been in strong rebound mode as the dollar regained its strength while the safe haven appeal of the yen quickly faded as Brexit-driven volatility died down. In the course of this rebound, the currency pair broke out above key resistance levels, including 103.00 and 105.50. Last week, USD/JPY rose towards its major 108.00 resistance target but was unable to reach it before pulling back.
Even in the absence of a Fed rate hike, a more hawkish Fed combined with additional BoJ easing this week could prompt a strong further surge for USD/JPY. The upside level to watch continues to be at the noted 108.00 area. Any breakout above 108.00 should target the next major upside resistance objectives at 111.00 and 114.00. In contrast, any failure by the BoJ to act and/or steadfast dovishness from the Fed could lead to a sustained breakdown below key support at 105.50. In this event, the next major downside target is at the 103.00 support level.
Investopedia does not provide individual or customized legal, tax, or investment services. Since each individual’s situation is unique, a qualified professional should be consulted before making financial decisions. Investopedia makes no guarantees as to the accuracy, thoroughness or quality of the information, which is provided on an “AS-IS” and “AS AVAILABLE” basis at User’s sole risk. The information and investment strategies provided by Investopedia are neither comprehensive nor appropriate for every individual. Some of the information is relevant only in Canada or the U.S., and may not be relevant to or compliant with the laws, regulations or other legal requirements of other countries. It is your responsibility to determine whether, how and to what extent your intended use of the information and services will be technically and legally possible in the areas of the world where you intend to use them. You are advised to verify any information before using it for any personal, financial or business purpose. In addition, the opinions and views expressed in any article on Investopedia are solely those of the author(s) of the article and do not reflect the opinions of Investopedia or its management. The website content and services may be modified at any time by us, without advance notice or reason, and Investopedia shall have no obligation to notify you of any corrections or changes to any website content. All content provided by Investopedia, including articles, charts, data, artwork, logos, graphics, photographs, animation, videos, website design and architecture, audio clips and environments (collectively the "Content"), is the property of Investopedia and is protected by national and international copyright laws. Apart from the licensed rights, website users may not reproduce, publish, translate, merge, sell, distribute, modify or create a derivative work of, the Content, or incorporate the Content in any database or other website, in whole or in part. Copyright © 2010 Investopedia US, a division of ValueClick, Inc. All Rights Reserved
Recommended Content
Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.