It’s a make-or-break day for USD/JPY
Markets are mostly mixed at the moment but once again lower yields is continuing to pin down USD/JPY as price continues to walk on the tightrope that is the 100-day MA (red line), much like yesterday.
On days like these, forget about correlations and how price “should” react. E-minis are trading up by 0.6% currently at session highs though Asian equities aren’t faring all too well so far. The Nikkei is down by 0.7% currently as we approach the close. It sure doesn’t look like equities are offering much direction for the yen if anything else as the signals are mixed.
The major focus on USD/JPY is on the Fed today and the key technical level in the form of the 100-day MA – which sits at 112.41 currently. If the Fed delivers on expectations of a dovish hike, equities will receive a much needed boost and in theory that should support yen pairs for a move higher.
However, that will be counteracted by a move lower in the dollar as well as the likelihood of lower yields and that will weigh on USD/JPY more than the upside provided by equities in my view. It’s a fine balance and markets could easily shift focus from one rhetoric to another after the decision is made.
But for USD/JPY, the technical levels make it a little easier to point out which focus in markets will win out. And the 100-day MA is where the line is drawn in that case. Should the Fed give sellers the much needed drive to firmly break below the key support level, expect more pain to the downside for the pair considering the bullish bias has not been broken since April.
And in the build up to the decision and Powell’s press conference, expect the trading range to remain tepid with large expiries sitting at 112.40-50 today.