USD/JPY Upbeat after Hawkish Fed Rhetoric

  • USDJPY
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USD/JPY Analysis

Inflationary pressures continued to abate as Tuesday's US CPI report showed, with the headline figure decelerating to 7.1% y/y and the lowest level of the year. This allowed the Fed to proceed with its well-telegraphed moderation in the pace of tightening, delivering yesterday a 50 basis points rate hike. [1]

This was a significant downshift from series of outsizes 0.75% increases, but the bank pointed to more tightening ahead and Chair Powell delivered a hawkish message. Furthermore, officials now expect the benchmark rate to peak to a median of 5.1%, from 4.6% previously. This sizeable bump in the projected terminal rate suggests 75 basis points of rate increases.

USD/JPY finds support today as markets assess the Fed's update, which keeps the critical 137.70-138.00 region in its eyesight. A break above this level could spark a further recovery towards 140.61, although the upside contains many roadblocks.

Despite today's upbeat mood, the pair still runs a negative week and the reaction to the Fed's hawkish signals seems rather underwhelming for now. Furthermore, USD/JPY had rejected the aforementioned critical resistance on Tuesday, due to CPI-fueled slump.

As such, the greenback remains in a perilous state and there is still scope for lower lows (133.62), but sustained weakness and larger decline towards 130.38, has a high degree of difficulty at this stage.

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Nikos Tzabouras

Senior Financial Editorial Writer

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

1

Retrieved 19 Apr 2024 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20221214.htm

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