Preparing for the Fed hike
Since trading began this week, the price of the USD/JPY currency pair has been in an upward retracement mode, breaking above the psychological resistance at 140.00. As mentioned earlier, it is important that the bulls start to move higher, and indeed they moved towards the resistance level 142.25, before settling around 141.85 at the time of writing the analysis.
- We have noticed that the US Dollar is taking forward positions against the rest of the other major currencies until the contents of the minutes of the last meeting of the US Federal Reserve are announced.
- The bank’s increased tightening tone means more gains for the US dollar, as the rest of the world’s central banks have begun to cool down and limit rate hikes to avoid recession.
Before publishing the minutes of the meeting
San Francisco Fed President Mary Daley said officials should be mindful of delays in the transmission of monetary policy through the economy as they raise interest rates further in a bid to bring down the economy. ‘inflation. “As we strive to put policy in a sufficiently binding position – the level required to bring inflation down and restore price stability – we will have to be careful,” she added in prepared remarks for the Orange County Business Council. “Too small an adjustment would make inflation too high.” Overfitting can result in an unnecessarily painful contraction.
Ms Daly added that inflation is “unacceptably high” and that she and her colleagues note that there is still work to be done to bring it down, although the latest consumer price report, which showed a slowing down, or “encouraging”.
Policymakers have raised the U.S. Federal Reserve’s benchmark interest rate from near zero to a target range of 3.75% to 4% this year, including four straight 75 basis point hikes, the tightening campaign the most aggressive since the early 1980s. Investors expect the Fed to adjust the pace of US interest rate hikes to 50 basis points when officials meet Dec. 13-14.
But Daly said the interest rate is not the only element of monetary policy. The continued downgrading of its balance sheet by the Fed and those responsible for forward guidance providing the future trajectory of policy also act as tightening mechanisms, which is reflected in financial conditions. “While the silver rate is hovering between 3.75 and 4%, the financial markets are thus behaving around 6%,” she added. And “As we make decisions on further rate adjustments, it will be important that we remain mindful of this gap between the fed funds rate and the tightening in financial markets.” And “ignoring this increases the chances of over-tightening”.
She did not directly indicate how far she thinks the Fed should go in its prepared remarks. Daly said last week that it would be “reasonable” for the benchmark price to rise above somewhere between 4.75% and 5.25% before policymakers halt increases.
Elsewhere, as the trading year draws to a close, the sharp drop in the Japanese yen has been one of the most exciting market moves of 2022. All JPY crosses have risen, but one in particular stands out from the crowd – USD/JPY . This is the “currency” pair that everyone watches when trading the yen. It rose sharply soon after the Russian invasion of Ukraine. Jhe break was a surprise as the yen has so far acted as a safe haven currency. Therefore, the war should have caused a strong demand for the yen, but the opposite happened.
Forecast of the US Dollar against the Japanese Yen today:
- The break of the 140.00 psychological resistance from the USD/JPY currency pair will motivate the bulls to start moving forward.
- According to the performance on the daily chart, the bulls still have more time for strong control, and this can happen if prices move towards resistance levels which are 143.00 and 144.60 respectively.
- Upside hopes may evaporate if the dollar-yen pair returns to around the 139.30 support level.
- I always prefer to buy the dollar yen at each bearish level.
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