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USD/JPY Short Term Outlook with Fed Speculation in Focus

USD/JPY Short Term Outlook with Fed Speculation in Focus

Oded Shimoni, Junior Currency Analyst

Talking Points:

- USD/JPY nudging lower after finding resistance around 102.50

- Fed-Speak is in focus ahead for the pair, as the market eagerly awaits September 21

- Watching JGBs proving extremely telling this past months

The USD/JPY is nudging lower after the pair found resistance around 102.50, implying that further momentum to the upside might require a fundamental catalyst for a push higher.

This makes the next round of Fed-Speak interesting to watch for potential shifts in interest rates expectations as the market eagerly awaits what might be an explosive day September 21 with both the Fed and BOJ policy decision.

Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.

Click Here for the DailyFX Calendar

Fed-Speak takes center stage in the hours ahead as Boston and Dallas Fed Presidents Eric Rosengren and Robert Kaplan are due to give speeches.

Following a round of weak data including worse than expected NFPs and ISM numbers, Fed rate hike expectations have deteriorated lately, but slightly picked up yesterday for 18% in September and 51.4% in December (according to Fed Fund futures). Conveniently, exactly when the US Dollar hit support.

Participants will look to see if there is more aggressive talk of potential hikes before the two-week blackout period ahead of this month’s FOMC meeting.

A hawkish lean might help see the US Dollar edge higher as the market eagerly awaits what might be an explosive day September 21 with both the Fed and BOJ policy decision.

Indeed, the BOJ decision will be in huge focus as the bank wrestles with perceived lack of firepower to stimulate the economy.

In this context, looking at Japanese Government Bonds behavior has proved telling. The last spike in yields, apparently against the backdrop of traders betting against the effectiveness of BOJ actions, initially saw only a limited response by the pair before plunging lower.

USD/JPY Technical Levels:

Click here for the DailyFX Support & Resistance tool

We use volatility measures as a way to better fit our strategy to market conditions. The Yen is expected to be the most volatile currency versus the US Dollar based on 1-week and 1-month implied volatilities, but ATR measures suggest a reduced level of volatility as of late.

In turn, this could imply that key tech levels could hold in the short term, but things seems likely to pick up ahead.

USD/JPY 30-Min Chart (With the GSI Indicator): September 9, 2016

(Click to Enlarge)

The USD/JPY is trading at a potential resistance area below 102.50, with GSI calculating even percentage of past movements to either side in the short term.

The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.

You can learn more about the GSI here.

Other levels of resistance might be 102.882, 102.30, 103.60 and the 104 handle.

Levels of support might be 102, 101.50 and 101.

We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.

We studied over 43 million real trades and found that traders who successfully define risk were three times more likely to turn a profit.

Read more on the “Traits of Successful Traders” research.

Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 74.0% of traders are long the USD/JPY at the time of writing, offering a short bias on a contrarian basis.

You can find more info about the DailyFX SSI indicator here

--- Written by Oded Shimoni, Junior Currency Analyst for

To contact Oded Shimoni, e-mail

Follow him on Twitter at @OdedShimoni

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