USD/JPY Pressured as Markets are Jittery Ahead of the Fed, Despite the Credit Suisse Deal
USD/JPY Analysis
Banking giant UBS agreed to acquire the embattled Credit Suisse for CHF 3 billion, with the blessing of the Swiss National Bank that pledged CHF100 billion to support deal and the government, which granted a guarantee of CHF 9 billion to "to assume potential losses". [1]
Regulators and central banks around the world have been taking action to contain the fallout from the recent collapse of the Silicon Valley Bank, but fears over the financial system persist. This sends safe-haven flow to the Japanese Yen, as markets now brace for the upcoming decision by the US Federal Reserve on Wednesday.
Policymakers have been tightening monetary policy for a year now and have recently adopted a more aggressive rhetoric given persistent inflation and tight labor market. The banking turmoil though, may constrain the Fed into a more reserved stance and markets have moderated their previously heightened expectations. At the time of writing, CME's FedWtatch Tool assigns the highest probability to a rate increase of 25 basis points, but a pause is in play. [2]
USD/JPY slumped last week as the events unfolded and stays under pressure today, with markets jittery, despite the UBS-Credit Suisse deal and other efforts to assuage contagion fears. This brings 128.07 in the spotlight, but fresh catalyst will be needed for a breach that could open the door to new 2023 lows towards 126.35.
On the other hand, USD/JPY finds some reprieve at the lower border of the daily Ichimokou Cloud, which may give it the opportunity to rebound. However, a significant change in sentiment would be required for challenging the critical 134.00 region and the EMA200.
The current environment is very volatile and event still unfold and as suh caution is needed as focus shifts to the Fed meeting, the outcome of which can determine the next leg of the move.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 20 Mar 2023 https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-93793.html | |
| Retrieved 09 Jun 2023 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html |
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