In the very fabric of the foreign exchange market, anticipation can cause as much movement as action itself. The USD/JPY currency pair unveils a scenario that portrays the economic interplay between subtle cues and significant proceedings, weaving a tale of expectation and pre-emptive market behaviour.
Current market projections for the USD/JPY pair demonstrate a modest upside potential, but some participants have their sentiments measured and their decisions on hold as they anticipate pivotal meetings of two of the world’s leading central banks – the Federal Reserve of the United States (Fed) and the Bank of Japan (BoJ).
The Federal Reserve, at the epicentre of global economic direction, is widely expected to hold firm on its current interest rate levels. This confidence in the Fed’s steadfastness is underpinned by a series of recent upbeat economic data from the United States, which appears to stem the flow of wagers betting on a rate reduction come June. From there, the forecasts have 0.75%-1% in reductions for the Fed rate in to the end of this year.
On the other side of the Pacific, the BoJ faces a bout of speculations, imbued with a less than 50% probability of a rate rise. Contributing to this conjecture is the significant wage increase agreement by Japanese firms, a move that tills the soil for potential monetary tightening – an unusual prospect for a nation long lost in a low-interest wilderness.
In the tug of war between the yen and the dollar, technical analysis reveals the USD/JPY price is locked in combat at a formidable resistance zone. This zone is delineated by the convergence of the 0.618 Fibonacci level. Whilst the dollar has strengthened against the yen some 5.83% YTD, the more recent 1 month trend has the yen 0.54% to the upside.
Looking to navigate through the resistances, should the pair eclipse the 0.618 Fibonacci threshold, the path may clear towards the 150.75 level which, if breached, could beckon a new wave of bullish fervour. It should be an interesting week ahead if you are trading the ‘gopher’.
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