USD/JPY hits a support zone heading into the FOMC meeting tomorrow evening
|- USD/JPY is trading 0.21% lower at 105.50 on Tuesday.
- There has been a bid as a support level which has been tested four times.
Fundamental backdrop - More clarity needed from the Fed
At the virtual Jackson Hole meeting, the Fed made a change to their inflation target of 2% and moved to an average inflation target. This means they are now willing to allow a short term overshoot and 2.5% has been thrown around recently as a key level. Also, the Fed has announced they will be targeting a certain employment level before rates rise. Maybe Powell will give us more information about this as it could mean more stimulus could be used to hit the targeted level.
In Japan, Abe's understudy, Suga has won enough votes and will be sworn in as leader of the nation. Suga was a supporter of Abenomics and the QE to infinity policy looks set to continue but there are not too many options left for the Japanese to induce inflation and get growth going. It will be interesting to hear the new leaders plan and in the coming days after all the introductions are made we should get more information.
Technical picture
Looking at the chart, the support zone just above 105.20 by the black horizontal line has been used once again. The green upward sloping trendline has been broken to the downside now and it could be used again and retested. More importantly, the trend is still firmly sideways and until the aforementioned support line is firmly broken this will remain the case.
The indicators are bearish yet again and in a sideways environment the averages become thin and when the market finally moves there is often an overreaction. The Relative Strength Index is now in the oversold area and the MACD histogram is in the red. The signal lines are also under the zero level which is also a bearish signal.
Additional levels
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