USD/JPY Forex Forecast – Rallies as Powell Comments Spark Fears of Higher Rates

The Dollar/Yen is sharply higher at the mid-session on Tuesday after comments from Federal Reserve Chair Jerome Powell suggested that rates may need to go higher for longer, fueling fears of a potentially more significant rate hike at the central bank’s next policy meeting.

At 19:00 GMT, the USD/JPY is trading 136.721, down 0.795 or +0.59%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) is at $68.13, down $0.38 or -0.56%.

“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said in remarks to the Senate Banking, Housing, and Urban Affairs Committee Tuesday morning. “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”

The comments indicated that the Fed might consider a more prominent rate hike than last month’s 25 basis point increases at its next policy meeting on March 21-22. This would come when the Bank of Japan (BOJ) is expected to leave its ultra-dovish policy unchanged, giving the advantage to the U.S. Dollar.

Daily USD/JPY Technical Analysis

The main trend is up according to the daily swing chart. It was reaffirmed on Tuesday when buyers took out the last main top at 137.096. A trade through 135.260 will change the main trend to down.

The primary support is a long-term Fibonacci level at 133.992. The major resistance is a long-term 50% level at 139.586.

Daily USD/JPY Technical Forecast

Trader reaction to 136.266 is likely to determine the direction of the USD/JPY into the close on Tuesday.

Bullish Scenario

A sustained move over the intraday high at 137.158 will indicate the buying is getting strong. If this more continues to generate enough upside momentum then look for an eventual test of 139.586.

Bearish Scenario

A sustained move under the intraday low at 137.158 will signal the presence of sellers. This could lead to a near-term test of the pair of main bottoms at 135.374 and 135.260.

Taking out 135.260 will indicate the selling pressure is getting stronger. This could lead to a near-term test of the support cluster at 134.062 to 133.992.