USD/JPY: Fresh highs after relatively hawkish FOMC minutes, but yields stationary
|- USD/JPY can rise a little higher on the back of the FOMC minutes.
- USD/JPY is currently trading at 112.46 post the minutes, up from 112.38 a the time of release. A high of 112.47 was made.
- US 10 years stationary at 3.17% - dollar can creep higher as that is a plus for risk appetite.
We had a pretty muted reaction to the FOMC minutes and dollar bulls will be disappointed on the outcome, regardless that there is content here from the Fed that will allow for higher rates on the longer end and can be interpreted as hawkish.
FOMC minutes: Some members see the need for raising rates above neutral
But the risk there for the bulls is that markets do not want a higher dollar or higher rates and rallies in the dollar may well be met with fierce opposition due to risk-off positioning in markets playing out. However, all in all, the minutes offered little in the way of new messages or guidance and were broadly in line with expectations without being too much of a particular focus on 2019 or a December hike. However, there was an emphasis on a number of Fed officials seeing the need to hike above the long-run level - That's hawkish and underscores the intent to keep raising in 2019.
Estimates of the neutral rate would be only one factor in setting rates
Members noted that estimates of the neutral rate would be only one factor in setting rates - which is also crucial considering it means that the Fed does accept that there could be conditions were rates would need to be hiked beyond the neutral level. There was also some content with respect to the value of the dollar and concerns of how a strong dollar could play a negative road on a macro level.
"Call it what you will, normalization, hawkish, counter-cyclical, the FOMC minutes underlined the Fed's determination keep its rate policy intact through 2019. The question the governors can't answer is has the economy become addicted to low rates?" - Joseph Trevisani, Senior Analyst at FXStreet wrote.
USD/JPY levels
- Support levels: 111.90 111.50 111.20
- Resistance levels: 112.40 112.85 113.10
112.47 guards 112.84 and the 8th Oct lows ahead of R3 located at 113.24. In a return of risk-off flows, the 111.80/83 guards the uptrend support at 111.55 as a key destination before 111.20.
Valeri Bednarik, Chief analyst at FXStreet explained that this acceleration through the 4hr 200 SMA, currently at around 112.40, could favor another leg higher but it will depend on broad dollar's strength or weakness:
"The main support continues being the 100 DMA at around 111.50, a level unlikely to be tested today."
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