With the Federal Reserve two-day policy meeting and the pending decision of the Bank of Japan in focus on Tuesday, both the US and Japanese currencies have adjusted to the situation. As it stands, the yen is broadly stronger than the dollar.
The Fed’s much-awaited meeting kicks off today. While the vast consensus is for the US central bank to keep rates steady at the conclusion of its meeting on Wednesday, there are market players anticipating it to shed more light that it is prepared to hike rate by year-end.
At present, markets are pricing in just a measly 12% prospect that a rate increase will occur this week. December odds tacked on 59%, according to the Fed Rate Monitor Tool from Investing.
Markets are also monitoring the outcome of the BoJ’s policy meeting that will commence on Wednesday. Speculations are widespread that the Japanese central bank will create critical modifications to its easing measures. Speculations are also indicating a potential interest rate cut deeper into negative territory, changes in its asset-purchase program or new rules on the duration of securities it will acquire in the bond market.
The BoJ has already implemented negative interest rates and is printing 80 trillion yen or $750 billion annually to rouse inflation after decades of deflation and dull growth. But despite these, inflationary prospects seem to be waning.
Traders are skeptical that the BoJ would have enough measures to push the Japanese currency drastically lower.
(image taken from Wikipedia)
Ahead of the meetings set this week, the US dollar slipped lower against the other major currencies on the caution of the investors. The greenback edged lower almost 0.2% against the yen and hit a session trough of 101.55, a level last seen in September13.
As of writing, the dollar has had a meager recovery, up by 0.06% to 95.85. The yen was stronger still, with USD/JPY dipping 0.03% to 101.90.
On a weekly view of the forex pair, USD/JPY has been steadily going downhill since August 2015. Since Friday’s session, the dollar has been broadly weaker against the Asian currency. The Bollinger bands are indicating a squeeze in the same period, thus trading will be limited in a narrow range for quite some time.
Taking a look in a shorter time frame, the narrowing of the Bollinger bands are much more obvious and almost pointing downwards. The trend line is weak; the third candle wick in that hit the trend line had false bullish candle the next and proceeded to head downwards.
This indicates a great possibility that USD/JPY will still continue to be controlled by the bears, even if the current fundamentals are almost making both currencies balanced. The current candle has formed a doji star that indicates both indecision and equilibrium between the dollar and the yen. That may be the forecast for what may come next, but on a wider perspective, USD/JPY is likely to head downwards.