The Dollar/Yen inched higher early in the session, but prices turned lower quickly as buying volume dropped ahead of today’s U.S. Federal Reserve interest rate decision and monetary policy statement.
At 0958 GMT, the USD/JPY is trading 109.811, down 0.045 or -0.04%.
At 1800 GMT, the Federal Open Market Committee (FOMC) will make its interest rate and policy announcement at 1800 GMT. Most investors are not expecting the central bank to tighten its policy. Expectations in the market for a rate hike are just 5.7 percent, according to the CME Group’s Fed Watch tool.
However, traders will be looking at the monetary policy statement for clues about the central bank’s views on inflation and the economy. The statement may also reveal the central bank’s thoughts on future rate hikes. At this time, traders are pricing in a quarter-point rate hike for June.
Forecast
Traders don’t expect the Fed to raise rates at today’s meeting, but they are betting on a rate hike in June and another later in the year.
If the Fed delivers what investors expect then the USD/JPY could weaken on profit-taking and position-squaring due to overbought technical conditions.
The USD/JPY could extend its gains if the Fed statement hints at a fourth rate hike this year. The Fed is likely to drop the hint if it sees evidence of inflation heating up.
Technically, the main range is 114.728 to 104.600. Currently, the USD/JPY is testing its 50% to 61.8% retracement zone. This zone tends to attract sellers so we are going to be on the lookout for a possible reversal to the downside today.
This scenario is likely to take place if the Fed delivers exactly what the market is looking for and offers no expectations for a fourth rate hike this year.