USD/JPY Clings to 115.10 Hurdle Ahead of FOMC Rate-Hike

2017-03-14 14:58:00

Talking Points:

- USD/JPY Clings to 115.10 Hurdle Ahead of Fed Rate-Hike; Outlook Hinges on Interest Rate Dot-Plot.

- EUR/USD Fails Again at 1.0680 Hurdle; Downside Targets in Focus Going Into Dutch Election.

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
USD/JPY	114.64	115.20	114.56	24	64

USD/JPY Daily

Chart - Created Using Trading View

USD/JPY appears to be making another run at 115.10 (50% retracement) especially as the Federal Open Market Committee (FOMC) is widely expected to deliver a 25bp rate-hike on Wednesday, and the fresh developments coming out of the central bank may heighten the bullish sentiment surrounding the greenback as Chair Janet Yellen and Co. appear to be on course to implement higher borrowing-costs over the coming months; however, another failed attempt to close above the topside hurdle raises the risk for a near-term pullback as the pair continue to operate within the downward trending channel carried over from December.

Source: FRB

With Fed Fund Futures still pricing a greater than 90% probability for a March rate-hike, the fresh updates to the interest rate dot-plot may heavily influence the dollar-yen exchange rate as market participants gauge the future path of the Fed’s normalization cycle; comments endorsing a June rate-hike should fuel rebound from the monthly low (111.69) amid the diverging paths for monetary policy, but a bearish scenario may unfoldfor the greenback should Fed officials highlight a more shallow path for the fed funds rate.
With that said, the Bank of Japan (BoJ) is likely to retain a dovish tone at its March 16 interest rate decision and may keep the door open to further embark on its easing-cycle as the central bank struggles to achieve the 2% target for inflation; market participants may show a limited reaction to the BoJ as the central bank sticks to its Quantitative/Qualitative Easing (QQE) program with Yield-Curve Control, but Governor Haruhiko Kuroda and Co. may come under pressure to boost its non-standard measures as the central bank pledges to keep the 10-Year yield close to zero.
Broader outlook for USD/JPY remains constructive followed the failed attempts to break below the Fibonacci overlap around 111.30 (50% retracement) to 111.60 (38.2% retracement), while the Relative Strength Index (RSI) preserves the bullish formation carried over from the previous year; need a close above the 115.10 (50% retracement) hurdle to open up the next topside area of interest around 117.00 (38.2% retracement) to 116.10 (78.6% expansion) followed by 117.00 (23.6% retracement).

Currency	Last	High	Low	Daily Change (pip)	Daily Range (pip)
EUR/USD	1.0639	1.0663	1.0626	14	37

EUR/USD Daily

Chart - Created Using Trading View

EUR/USD continues to give back the advance from earlier this month, with the pair at risk for further losses as it marks another failed attempt to close above the near-term hurdle around 1.0660 (50% expansion) to 1.0680 (78.6% expansion); broader outlook remains tilted to the downside as the European Central Bank (ECB) continues to pursue its easing-cycle.
The single-currency may face increased volatility over the comings days with the Dutch election underway, while the U.K. edges closer to triggering Article 50 of the Lisbon Treaty; the geopolitical risks surrounding the euro-area may force President Mario Draghi and Co. to further support the monetary union as the ‘balance of risks to the economic outlook was seen as remaining on the downside.’
However, the ECB appears to be in no rush to further expand its balance sheet and the central bank may try to buy more time at its next policy meeting on April 27 as the Governing Council remains on course to reduce its asset-purchases to EUR 60B/month; may see President Draghi and Co. increase their efforts to ward off a ‘taper tantrum’ as they struggle to achieve their one and only mandate for price stability.
Failure to close above 1.0660 (50% expansion) to 1.0680 (78.6% expansion) may spur a move back towards the lower bounds of the recent range, with the first downside target coming in around 1.0600 (23.6% expansion) followed by the Fibonacci overlap around 1.0470 (38.2% expansion) to 1.0500 (50% expansion).

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