All market participants today will turn their attention to FOMC’s decision at 18:00 GMT, which is one of the most significant announcements for this month. Federal Reserve Committee is widely expected to vote for raising Federal funds rates to 0.75% – 1% from 0.5% – 0.75% now. This event may have a strong impact on the market and if they raise interest rates as expected probably will affect the U.S. dollar positively. However, this might be tricky as the greenback traded mixed during the last couple of days and it has a weak momentum. Fed will also publish economic projections and half an hour later Fed Chair Janet Yellen will give a press conference and may give any hint as to when the next hike is likely to occur.
Federal Reserve statements and policymakers over the last months always were stating that two conditions are necessary for Fed to tighten the monetary policy: 1) the economy to be near full employment and 2) in a path of a rising strong inflation rate. According to the CME Group FedWatch tool, the central bank may increase its borrowing rates by 25bps to 75-100bps at today’s policy meeting with a probability of 90.8%.
USD/JPY – Technical Outlook
The U.S. dollar traded lower against the Japanese yen during yesterday’s session, however, it still has a weak momentum as it awaits the Fed interest rate decision late in the day. The USD/JPY pair created a narrow range over the last five days with upper boundary being the 115.50 price level and lower boundary - the 114.50 support barrier. Last week, was a significant bullish session for the pair as it managed to challenge a fresh six-week high at 115.50, however, it failed to hit it again.
We expect a further upward movement until the 116.00 strong psychological level. On the other hand, if the Federal Reserve surprises today and leaves interest rates on hold, then the currency pair will hit the 114.15 support obstacle if there is a break of the 114.50 barrier which overlaps with the 50-SMA on the 4-hour chart. Technical indicators seem to be in contrast with our bullish thought as the price is still moving lower. The RSI indicator slipped below the 50 level while MACD is falling within the positive territory.