USD/JPY Fundamental Forecast – February 23, 2017

At first glance, investors felt the minutes from the Fed’s January 31 – February 1 monetary policy meeting suggested the central bank was hawkish about a possible rate hike in March, but the price action in the Treasury market and the Dollar/Yen suggested otherwise.

The USD/JPY finished the session at 113.310, down 0.363 or -0.32%.

I guess the best conclusion we can derive from the minutes is that the Fed policy makers are confident that they can take their time raising rates as there is little threat inflation will suddenly accelerate. We also know that the FOMC members wrestled with uncertainty on issues ranging from the Trump administration’s fiscal stimulus plans to the headwinds a rising dollar may pose.

At the end of the day, the odds for an increase in March retreated to 36 percent. The odds for a June rate hike sit at about 47 percent.

Forecast

The reaction by traders to the Fed minutes and the current technical chart pattern suggests that they believe the central bank is being cautious about the timing of the next rate hike.

Technically, the USD/JPY has establish solid resistance at 115.121 to 115.955.

The new short-term range is 111.583 to 114.950. Its key support area is a retracement zone at 113.267 to 112.869. Trader reaction to this zone will determine the next major move by the USD/JPY.

The Forex pair could continue to trade both sides of 113.267 to 112.869 over the near-term as investors prepare for a key speech by Treasury Secretary Mnuchin at 1200 GMT on Thursday. Next week’s prime-time address to Congress by President Trump will also be a key event. This will be followed by the next Fed meeting on March 15.

I’m predicting the USD/JPY will remain rangebound, but volatile, so start preparing for some wicked moves.