USD/JPY and 142 Hinged on a Hawkish Fed Chair Powell

Highlights

• It is a quiet morning for the USD/JPY, with no economic indicators to provide direction.
• However, market sentiment toward the Fed interest rate decision will influence ahead of the interest rate decision and press conference.
• The near-term technical indicators are bullish, signaling a return to 142.

On Tuesday, the USD/JPY fell by 0.41% to wrap up the day at 140.890. Risk on sentiment and uncertainty toward the Fed interest rate decision and forward guidance left the dollar on the back foot.

This morning, there are no economic indicators from Japan or China to move the dial. The lack of economic indicators will leave sentiment toward the Fed and BoJ interest rate decisions to move the dial.

On Monday, Politburo pledges could incentivize the Bank of Japan to tweak its Yield Curve Control (YCC) policy. However, inflation numbers on Friday will need to be hotter than expected to force a tweak from ultra-loose.

The US Session

US housing sector data should have a muted impact on the AUD/USD, with the Fed interest rate decision and press conference in focus.

A 25-basis point interest rate hike would leave the FOMC Statement and press conference to move the dial. With the softer US CPI Report wiping out bets on a September rate hike, a hawkish 25-basis point interest rate hike would catch the markets by surprise.

USD/JPY Price Action

Daily Chart

The Daily Chart showed the USD/JPY hovered below the 141.2 – 141.9 resistance band. Despite a second day in the red, the USD/JPY remained above the 50-day (140.175) and 200-day (136.728) EMAs, sending bullish near and longer-term time price signals.

Notably, the 50-day EMA pulled further away from the 200-day EMA, affirming the near-term bullish trend.

Looking at the 14-Daily RSI, the 50.17 reading signals a moderately bullish outlook, supporting a breakout from the 141.2 – 141.9 resistance band to target 142. However, a USD/JPY fall through the 50-day EMA (140.175) would bring the 139.5 – 138.8 support band into play.

Price action today is hinged on the Fed’s monetary policy outlook.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY faces strong resistance at 141. However, the USD/JPY sits above the 200-day (140.719) and 50-day (140.563) EMAs, sending bullish near and longer-term price signals.

Significantly, the 50-day EMA narrowed on the 200-day EMA, signaling a breakout from the 141.2 – 141.9 resistance band to target 142. However, a USD/JPY fall through the 200-day (140.719) and 50-day (140.563) EMAs would bring the 139.5 – 138.8 support band into view.

The 14-4H RSI reading of 51.93 sends moderately bullish signals, with buying pressure outweighing selling pressure. Notably, the RSI aligns with the EMAs and supports a breakout from the 141.2 – 141.9 resistance band to target 142.

Price action today is hinged on the Fed’s monetary policy outlook.