- USD/JPY is holding firm ahead of the FOMC, with traders focused on the press conference for clues on the pace of future cuts.
- The broader uptrend remains intact, with potential pullback zones between 155 and 153 offering possible long entries.
We do have the FOMC interest rate here in a couple of hours, and perhaps more importantly, we have the press conference. So, I suspect that about three hours from now, this chart will look quite a bit different. That being said, it doesn't really matter because there are a couple of things that we can look at to determine whether or not there is going to be a continuation of the trend, or do we get some type of significant pullback. Notice how I didn't say change in trend. And that's because it would take a massive change in tone by the Federal Reserve to turn this thing around.
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Pay attention to the press conference; he may say something along the lines of “data-dependent in our future decisions”, and that throws a bit of doubt into the market about the likelihood of continuous interest rate cuts. If that's the case, then the US dollar should do quite well over the longer term. As a trader, I have closed my long position, and I'm waiting for an entry again. I look at this through the prism of maybe 154 yen being an excellent opportunity. But if we take off straight away and that would be a result of either Powell sounding very hesitant to cut going forward, the statement sounding very hesitant, or maybe they don't cut at all.
Watching Key Pullback Zones
Right now, the Fed watch tool at the CME suggests, I want to say it's around 90%, I haven't checked it in a few days, that the Federal Reserve will cut. So, I think that would catch the market so far offside that the US dollar would just slam through the 158 yen level and go to the 160 yen level very quickly. That being said, though, I do think we have an opportunity for a little bit of a pullback to take advantage of, and that's exactly what I'm going to do. I'm watching this area right around 155, down to 154, and then again at 153.
What I am looking for on a shorter timeframe, not the daily chart necessarily, is some type of move like this. The V pattern on the hourly chart. Once we start to bounce and pick up a little bit of momentum, I'm willing to go long, and that's because I am okay with owning this pair longer term. That being said, if we break down below 153 in the next several days, then the game's up at least for a while. I don't think that happens. Truthfully, I'd be a bit concerned if we broke down below 154, at least in the short term.
Longer term, I do think we'd go higher because the Bank of Japan has a whole litany of problems it has to deal with as well. And really, at this point in time, I think this ends up being a continuation of the carry trade, but I recognize that you may get an opportunity to pick up cheap US dollars.
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