USD/JPY Forecast: Setting a triple-bottom as the Fed is set to abandon three hikes in 2019

USD/JPY trades at around 112.40, slightly lower on the day. The US Dollar has been under pressure as speculation mounts ahead of the rate decision by the Federal Reserve. The concept of a dovish hike is gaining traction ahead of the announcement. 

The world's most powerful central is set to raise rates in its final act of the year. This was widely telegraphed. However, uncertainty looms about the prospects for 2019. The latest interest rate projection, known as the dot plot, pointed to three hikes next year.

Signs of an economic slowdown after rapid growth in the spring and summer were joined by a few dovish comments by Fed officials. A downgrade is certainly possible, especially as it takes only two members to lower their forecasts for the median to come at two increases.

However, markets see low chances of a single increase next year. A downgrade to one projected rise would certainly qualify as a dovish hike and send the USD down. But a modest decrease to two projected moves could put the greenback in the green.

See: Federal Reserve Preview: Slowdown Ahead

The recent weakening of the US Dollar against the Euro and the Pound implies that expectations for a dovish move are rising. In the case of USD/JPY, the slide also reflects jitters in stock markets. The S&P took a dive to the lowest levels since October 2017 on Tuesday but managed to pare most of the losses. The safe-haven yen strengthens when share prices suffer.

The US also publishes Existing Home Sales today, but these are overshadowed by the Fed.

USD/JPY Technical Analysis - Triple Bottom

The USD/JPY marked the 112.20 for the third time this month, making it a triple bottom. This is a key line to the downside. Further below, 111.75 was a low point back in October. The 111.35 trough from later that month is another substantial level to watch. The next support line is at 110.40, followed by 109.70.

112.65 capped the pair in recent days and serves as immediate support. It is followed by the 113.15 level just above the 50 SMA on the four-hour chart. The next lines are 113.70 and 114.05. 

USD/JPY trades well below both the 50 and 200 SMAs. In addition, downside Momentum is quite considerable and the Relative Strength Index (RSI) is just above 30, thus not in oversold conditions it suffered earlier in the week.

All in all, the bears are in control.