USDJPY price analysis – Expect volatility to pick up

The USDJPY pair will most likely be volatile over the next days as both the central banks are scheduled to decide about monetary policies. 

31 July 2019 | Axiory –  During Tuesday’s night, many Japanese macro numbers will be released, such as the unemployment rate, industrial production, and others. However, the most important event of the night will be the Bank of Japan’s monetary policy decision.

USDJPY fundamental highlights

Traders are not expecting any major changes to monetary policy in Japan and the main rate should stay at -0.1%. However, the following statement could be dovish as all the other major central banks changed their stance to dovish and if the Bank of Japan stays neutral, it could lead to a sever Japanese yen’s strength, which is unwelcome for the BoJ. Volatility could be higher after the decision.

The focus will then switch to Wednesday’s FOMC meeting. Market participants want to see the fed funds rate go lower and this will most likely happen – the fed funds should be lowered for the first time since the financial crisis by 25 basis points to 2.25%. 

This, however, should be already priced in. Therefore, the greenback might not decline after the decision. There is one problem to this approach – some traders are expecting a 50 basis points cut. This would be a major blow for the greenback and it could decline sharply. If you want to be trading the greenback on Wednesday, get ready for some strong volatility spikes. 

USDJPY technical analysis

When it comes to the technical analysis – it’s neutral as it has been for a very long time already. The major resistance now stands at 109, where previous highs are located, and the USDJPY pair might rally beyond this level if the Fed isn’t as dovish as dreaded. 

Alternatively, the strong support is seen near 108.30, where the short-term bullish trend line is located, along with previous highs. If this level is broken to the downside, the short-term outlook could switch back to bearish and this scenario would most likely be in play after a very dovish Fed. Another buying area could be near 107.80. 

Both the medium and long-term trends are neutral and traders should, therefore, focus on the short-time action.

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