USD/JPY Forecast: Price Action Subdued as Fed Rate Hike Expectations Fade

Highlights

• Rate hike anticipation diminishes for Dollar/Yen.
• Central banks may hesitate on further rate increases.
• Uncertainty surrounds the Federal Reserve’s interest rate decision.

Overview

The Dollar/Yen  is inching lower on Wednesday as anticipation of a rate hike by the Federal Reserve waned. Traders found themselves in a contemplative state, pondering whether the global monetary policy tightening cycle was nearing its end. The prevailing sentiment seemed to suggest that central banks that had previously taken a pause may, in fact, be more inclined to skip further rate increases. This sentiment could potentially extend to the Federal Reserve as well.

Interest Rate Dilemma

There is a growing notion that developed markets’ central banks may need to take additional measures to raise interest rates. However, market expectations point to the U.S. central bank maintaining its current rates at the upcoming policy meeting, with a possibility of another rate hike later in the year.

USD/JPY Stable Amid Rate Uncertainties

In recent times, U.S. rates have commanded considerable attention from global investors, with fluctuations in the U.S. currency resulting from both economic data releases and Federal Reserve officials’ statements. Despite these concerns, the USD/JPY found stability on Wednesday, trading within a narrow range. The support from a weaker dollar acted as a counterbalance to uncertainties surrounding the Federal Reserve’s impending interest rate decision.

Bulls Hoping for Hawkish Fed

The USD/JPY is maintaining its overall uptrend, leaving traders wondering when the Federal Reserve will conclude its rate-hike campaign. Clarity on this matter could potentially lead to upward movements in the Dollar/Yen. If the Federal Reserve adopts a more hawkish stance due to durable inflation, particularly now that challenges such as the debt ceiling have been resolved, the upside potential for the pair could be significant.

Traders Eyeing US Inflation Data

The New York Fed recently reported a decrease in supply pressures, indicating a reduction in one of the major factors driving up global inflation. With the Federal Reserve meeting scheduled for next week, investors are eagerly awaiting the release of the U.S. consumer price report for May on June 13. This report will offer valuable insights into the health of the world’s largest economy, especially considering recent mixed economic data and dovish comments from Federal Reserve officials.

Fed to Pause in June, Hike in July

Market expectations, as indicated by Fed fund futures, suggest an 80.6% probability that the Federal Reserve will maintain interest rates in the 5%-5.25% range. However, there is a 51% likelihood of a 25-basis point hike in July.

As the Dollar/Yen remains influenced by shifting rate hike expectations and global economic trends, traders eagerly await the Federal Reserve’s next moves and seek clarity amidst a complex and evolving landscape.

Technical Analysis

The USD/JPY has been trading inside 142.216 (R1) and 137.859 (PIVOT) for two weeks. This indicates investor indecision and impending volatility. It also means that traders are waiting for a catalyst. That catalyst could be next week’s CPI report or Fed interest rate decision.

he mid-point of this range is 140.038. The Forex pair is currently straddling this level, which suggests neutral momentum.

Since the main trend is up, buyers are likely to come in on a test of 137.859 (PIVOT) if they are looking for value. However, if it fails then look out to the downside. This could trigger a near-term acceleration into 134.783 (S1).

If the pivot holds and the upside momentum increases, then we’re going to assume that buyers are chasing the USD/JPY. This could create the upside momentum needed to challenge 142.216 (R1). Look for counter-trend sellers on the first test of this level.

Resistance & Support Levels

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