USD/JPY: bulls need to get and stay above the 200-D SMA again

  • USD/JPY is mixed in Tokyo, opening at 110.23 and dropping 10 pips before reversing up to 110.32 the high so far.
  • As well telegraphed, the FOMC raised the target range for the federal funds rate to 1.75-2.00% from 1.50-1.75.
  • All eyes turn to the BoJ and ECB.

USD/JPY is mixed in Tokyo, opening at 110.23 and dropping 10 pips before reversing up to 110.32 the high so far. Crucially the pair is headed back for a test of the 200-D SMA after an eventful overnight session with the hawkish outcome from the FOMC, albeit widely expected as so. 

As well telegraphed, the FOMC raised the target range for the federal funds rate to 1.75-2.00% from 1.50-1.75%. Eight of 15 Fed officials now expect at least four rate hikes will be needed this year, up from seven at the March meeting. The median projection now implies 4 hikes in 2018 instead of 3 hikes as in the March SEP. The FOMC members were also acknowledging an improved outlook for the US economy. 

The key takeaways for the FOMC were:

Projection is for 2.4% from 2.1% last with 4 rate hikes in 2018. 
The Fed Sees 3 hikes in 2019 to 3.1% from 2.9%.
The Fed has raised their GDP outlook to 2.8% from 2.7%.
The Fed has lowered their unemployment to 3.6% from 3.8%.
The Fed sees core PCE by the end of 2018 at 2.0% from 1.9%.  
The Fed sees PCE inflation at 2.1% from 1.9%.

However, the hawkish of the FOMC was soon offset but reports that the US will follow through with tariffs on $50bn in Chinese imports as soon as this Friday, raising the stakes in a potential trade war. USD/JPY has reached a high of 110.84 but came crashing back down to earth and traded as low as 110.08 in early Asia. From here, all ears will stay tuned to trade war noise while keeping an eye on the BoJ, but especially the ECB which should be more of an event considering ECB's Peter Praet, chief economist of the European Central Bank and his speech that was confirming the policy meeting will be pivotal for reaching a decision on when to end the institution’s bond-buying program. 

As for the BoJ:

"There is little expectation that the BoJ policy meeting at the end of the week will do any other than be an opportunity for the central bank to reinforce its commitment to its huge QQE programme. Inflation remains weak and there is speculation that policymakers could downgrade its price forecasts in the June or July meeting for FY2018 and beyond following the soft April data release. This would be taken by the market as a dovish policy message which could reinforce today’s better tone in USD/JPY. We expect USD/JPY to hold around the 100 level on a 3 mth view,"

analysts at Rabobank explained.

USD/JPY levels

Bulls need to get and hold above the 200-D SMA on a daily basis to open up risk towards May's 111.39 peaks. 111.50 is an option barrier that stood strong previously, lying just above the 111.39 May high in a congested area where the 161.8% of May low & 76.4% of the May drop was located. On the wide, the 112.30's, (Fibos at 112.22/33) remain key upside target. On the flipside, the Tenkan prop is located at 109.19. 
 

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