The Japanese has been rally strongly over the last two weeks as investors continued to discount the Fed’s hawkish stance. USD/JPY broke the 111 support (psychological level and Fibonacci 61.8% on June-July rally) to the downside. The road is now wide open for further decline with the 109 threshold as first target.
The Federal Reserve will wrap up its July meeting on Wednesday with only an updated statement. We will have to wait the September meeting to get new economic forecast and a press conference. Therefore, it will likely be a non-event as Janet Yellen will surely seize the opportunity to play for time, rather than rushing to tighten monetary policy. Yet, the clock is ticking and postponing further the timeframe would send a negative signal to investors. The September meeting will therefore be the next key event.
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In anticipation of this meeting, the market will monitor closely economic data from the US. A reversal in the negative trend of the last few months will quickly trigger into a re-pricing of a solid tightening pace, which would translate into a higher yields and stronger dollar. In the meantime, even though we think that the dollar’s debasement has reached its limit against several of its peers, the Japanese yen still has room to appreciate, thanks to its safe-haven status.
This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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