FOMC On Watch

USDJPY is rising again today as traders brace for the FOMC tomorrow followed by the September BOJ meeting on Friday. Traders are widely expecting the Fed to hike rates tomorrow on the back of headline annualised CPI remaining at 3.4% last month and core CPI (monthly) rising to 0.3% from 0.2%. Prior to that data we saw the NFP coming in sharply above forecasts and so with both the labour market and consumer prices showing strength, market pricing for a hike tomorrow has risen to around 95% from as low as 50% a fortnight ago. Given the hawkish shift in expectations, USD will need a firmly hawkish message from the bank tomorrow to sustain the rally with the risk that unless the Fed clearly signals the prospect of further tightening, the rally could fizzle out.

Hawkish BOJ Expectations

Following the Fed tomorrow, focus will then turn to the BOJ on Friday morning. Expectations have turned firmly hawkish there too. However, given the 7% recovery we’ve seen in the Yen, traders might be wondering how willing the bank is to go all in. As with the Fed, a further rate hike is expected this week and so it will take strong hawkish signalling from the bank to help propel JPY further here. However, if the Fed fails to convince bulls of more tightening to come but the BOJ does deliver a strong tightening message, this could fuel the next leg lower in USDJPY.

Technical Views

USDJPY

Price is today fighting to get back above the 154.65 level. If bulls can rally above this level, 157.85 is the next objective, in line with rebounding momentum studies readings. If we turn lower again, however, focus shifts to 152 as the next bear-target with 148.58 the deeper target on the horizon.