Key Points:
- Dollar bulls largely disappointed by FOMC meeting.
- RSI Oscillator still has room to move on the downside.
- Continued depreciation likely but watch for a Dollar rebound in the near term.
The USD/JPY had a relatively torrid week as the pair was beset by a negative greenback sentiment swing following the FOMC decision. The central bank’s lack of hawkish guidance was the main culprit and this sent the pair sharply lower to close the week over 200 pips lower at 112.69. However, it remains to be seen how the pair will cope in the coming week as the veritable bevy of FOMC pundits hit the wires to shape the markets expectations.
Last week was highly negative for the USD/JPY as the pair fell sharply as the U.S. Fed’s decision on interest rates hit the wires. Although the central bank followed through on the expectation of rate hikes, and raised the FFR 25bps to 1.00%, they failed to signal the start of the expected cycle of tightening.
Subsequently, dollar bulls were caught short footed and the appetite for the greenback immediately leaked out of the market. Subsequently, the USD/JPY slipped over 200 pips to close the week well down at 112.69. The Fed decision also largely overshadowed a relatively poor JPY Core Machinery Orders result which fell into contraction at -3.2% m/m.
The week ahead is likely to focus sharply on a range of speeches that are due out from the U.S. Federal Reserve, with the market’s interest largely falling on what Janet Yellen has to say. Given the turmoil that the greenback has seen over the past few days, it’s all but assured that the Fed’s PR machine will be out in force to stabilise market expectations. Subsequently, expect to see plenty of volatility as the Fed moves into `Jaw Boning’ mode. On the Japanese side, the Trade Balance figures are also due out early in the week but are unlikely to provide much in the way of movement for the pair.
From a technical perspective, price action’s recent dip below the 100 day MA appears to be beckoning in a move to the short side. In addition, the RSI Oscillator is trending sharply lower and still remains firmly wedged within neutral territory suggesting that there is still room to move. Subsequently, our initial bias is bearish for the week ahead with the caveat to watch for a rebound around the 111.61 mark. Support is currently in place for the pair at 112.55, 111.61, and 110.61. Resistance exists on the upside at 113.74, 114.75, and 115.50.
Ultimately, the pair retains its bearish predilection and it will take a significant boost from all of the FOMC member speeches due out in the next week to stem the tide. However, note that the greenback is unlikely to stay depressed for long, so be prepared for a rebound at some stage lest you get caught out.