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USD Advancing vs JPY, Falling vs EUR Ahead of US Interest Rate Rise

USD Advancing vs JPY, Falling vs EUR Ahead of US Interest Rate Rise

Martin Essex, MSTA,
What's on this page

USDJPY price, EURUSD price, news and analysis:

  • The Federal Open Market Committee will increase US interest rates Wednesday but the decision looks to be fully priced in, leaving little room for further USD upside.
  • With USD rising against JPY but falling against EUR, its future course will depend on any hints by the FOMC that another rate hike will follow in December.

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USD outlook to depend on December rate-rise prospects

USDJPY is rising but EURUSD is too ahead of an almost certain increase in US interest rates Wednesday by the Federal Open Markey Committee. That suggests the increase is now fully priced in to the markets and that the future direction of USD will depend near-term on what the FOMC says about the chances of another hike on December 19.

According to the CME FedWatch tool, the probability that the Federal Reserve will increase rates by a quarter of a percentage point tomorrow is 93.8% so the focus will be on the December meeting, where the chances of another rise are currently 76.2%. Any comments suggesting that is too high would weaken USD.

Probability of a US rate rise in December.

Source: CME

Looking at USDJPY first, the chart below shows the pair in a clear uptrend, with the price currently at its highest since July 19. That is in spite of comments Tuesday by Bank of Japan Governor Haruhiko Kuroda that the central bank has entered a phase where it must consider not just the merits but the side-effects of its huge stimulus program in a “balanced manner”.

USDJPY Price Chart, Daily Timeframe (April 1 – September 25, 2018)

Latest USDJPY price chart.

Chart by IG

If the Fed takes a hawkish stance, USDJPY could reach that July 19 high at 113.18 or even trendline resistance at 113.52. However, if its statement is dovish, it could fall to the 20-day moving average at 111.82.

By contrast, USD is weakening against EUR, with EURUSD hitting its highest Tuesday since June 14, helped by comments from European Central Bank President Mario Draghi forecasting a “relatively vigorous” pickup in underlying Eurozone inflation.

EURUSD Price Chart, Daily Timeframe (April 1 – September 25, 2018)

Latest EURUSD price chart.

Chart by IG

That June 14 high at 118.52 is now the obvious target to the upside, with trendline support at 116.58 likely to limit the downside.

Interest rates aside, the course of USD will also depend on developments is the US-China trade war, US President Donald Trump’s second talk at the United Nations General Assembly today and his meeting Thursday with US deputy attorney general Rod Rosenstein amid doubts over Rosenstein’s future in the job.

With USD now the go-to safe haven, any adverse news would likely prompt USD strength.

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.