USDJPY – signals from Fed about future actions to determine near-term direction

USDJPY remains constructive and extends recovery on Wednesday, ahead of key event of the day – Fed interest rate decision.

Markets widely expect the FOMC to raise interest rates by 25 basis points but will also focus on comments from Chair Warsh for clearer direction signal.

There are two scenarios in play – rate hike and hawkish stance of Fed that will signal further tightening and rate hike with calmer tones from Chief Warsh.

In the first scenario, the dollar may accelerate higher while in the second scenario gains could be limited, or with risk of slight easing, if Fed uses the standard mantra of closely watching developments and future policy decisions will be primarily made on the latest economic data, or more dovish stance in which Fed will signal no further tightening in coming months.

The latest price jump generated initial bullish signals on lift above the top of five day congestion and break above first Fibo barrier at 154.65 (23.6% of 160.39/152.88, reinforced by falling 10DMA), with repeated close above the latter required to keep slight bullish bias and maintain pressure on pivotal Fibo barrier at 155.75 (38.2% retracement).

Conversely, return and close below 154.69 would sideline hopes of stronger recovery, as overall picture on daily chart remains bearish (multiple MA bear-crosses / strong negative momentum) and requiring stronger rallies to improve.

Res: 155.75; 156.64; 157.00; 157.52
Sup: 154.65; 154.21; 153.24; 152.88