USD/JPY skyrockets through 112.00 as market re-adjusts Fed rate hikes pricing

Ivan Delgado Independent Analyst

The US Dollar has found an incredibly strong commitment to re-adjust its value into much higher levels across the board as a result of a more hawkish FOMC. USD/JPY saw an initial spike towards 112.00, followed by further follow through to touch a fresh daily high of 112.37.

More hawkish Fed into Q4 2017

The market is in the process of pricing an almost 70% chance of a Fed rate hike in Dec vs 46% pre-statement release. As per the policy statement, only 4 Fed members are expecting no more hikes this year, while 11 expect another hike before year-end, with 1 expecting two more hikes this year. Moving into 2018, three more hikes are currently priced in. Furthermore, the Fed is set to begin unwinding $4.5 trillion off its balance sheet in October, as expected. The market verdict was to immediately bid the USD, as the projections are more aggressive than anticipated.

One-way street for USD, rates

The push higher in USD/JPY is in line with rising US-Treasury yields, which continue a one-way street upmove, with the 10-year note benchmark approaching 2.28%. It is worth noting that while the Fed announced its decision, an earthquake hit Japan (6.1 magnitude), although no tsunami alert was issued. The BOJ monetary policy meeting outcome will be due on Thursday.

Bullish technicals all around

Looking at the technical picture, the pair has surpassed its daily ATR-14 period by over 20 pips at 112.15, although judging by the momentum indicators, tick volume as well as rising yield spreads, further rises may be seen towards 112.50 mid round number, ahead of 112.59 (R3); should further upside momentum be seen, 112.75/80 should not be ruled out ahead of 113.00. On the downside, pullbacks should definitely be perceived as buying opportunities.

Author

Ivan Delgado

Independent Analyst

Established in the Asian continent since 2009, Ivan studied a degree in Business at the University Pompeu Fabra (Barcelona), while also earning a postgraduate degree in Business Administration.

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