17 June, 2019 | Axiory - The USDJPY pair managed to stay (maybe miraculously) above the 108 level over the last days and traders bought the greenback on Friday after (let's say) positive US retail sales. Thus, it ended the previous week unchanged at around 108.50.
Fed vs Boj – which one will be more dovish?
The main focus over the next days will be on both central banks – the FOMC will conclude on Wednesday and the official consensus points to no changes in monetary policy. However, doves are hoping for a very dovish Fed’s wording – announcing rate cuts soon and/or any additional stimulus.
If the Fed doesn’t deliver this dovish statement, the greenback might strengthen notably, however, most likely it would be a bad sign (at least temporarily) for stocks and bonds. On the other hand, should the Fed deliver this dovish shift, the greenback could fall significantly and stocks/bonds might advance higher.
For now, the market expects the central bank to keep the fed funds at 2.5%, while investors anticipate at least 2 cuts this year and 4 cuts till the end of 2020. A brutal shift from a year ago, when markets had seen 2-3 rate hikes this year.
A couple of hours later, the Bank of Japan will decide about monetary policy. The BoJ doesn’t need to be entirely dovish, as it hadn’t hinted at cutting rates, or boosting QE, but considering the latest dovish shift in G7 central banks, even the Japanese central bank might lean toward loosening monetary policy again.
Again, should this happen, the yen might weaken and on the other hand, the Japanese currency could be bid.
Therefore, the night from Wednesday to Thursday will be very busy (and volatile) one.
Technical analysis doesn’t help at all
From the technical standpoint, the pair has been falling over the last two months, but June has so far brought with it some consolidation period, with the greenback posting higher highs and lows on the daily chart, which is a positive sign for bulls.
The key support seems to be at around 108.200, where the short-term uptrend line is located, along with previous lows. If bulls won't defend this level, the trend could switch back to bearish, targeting the 108 mark and afterward the current cycle lows near 107.80.
On the upside, offers will be located at June’s highs near 108.80 and if the greenback clears them out, larger stop losses could be hit, pushing the pair back above the 109 level.
As previously said, Wednesday will be the most important day and volatility is expected to be elevated, so trade cautiously.
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