The likelihood of a 25-basis point Fed rate cut has decreased from 62.6% on March 12 to 55.6% on March 19. The chances of a 50-basis point Fed rate cut have also dwindled from 19.1% on February 16 to 3.6% on March 19. This shift in probability has created uncertainty around a potential June Fed rate hike, resulting in a volatile Wednesday session for the USD/JPY.
The upcoming FOMC projections and press conference will play a critical role in shaping market sentiment towards the USD/JPY. Previous forecasts from the FOMC indicated a median interest rate of 4.6% by 2024 with three expected quarter-point rate cuts. Any alterations to this timeline, especially delaying rate cuts until the second half of 2024, could impact investor expectations and trading behavior surrounding the USD/JPY.
The near-term trajectory of the USD/JPY will largely depend on the outcome of the FOMC projections. Positive revisions to inflation, GDP, and unemployment projections could strengthen the US dollar and push the USD/JPY higher. However, the potential for intervention threats from the Japanese government may act as a limiting factor for the USD/JPY’s upside potential.
Currently, the USD/JPY has been trading well above its 50-day and 200-day EMAs, signaling a bullish trend. A move towards the 151 handle could lead to a test of the 151.685 resistance level, with a potential breakout towards the 152 mark. On the other hand, a drop below the 150 handle might invite selling pressure towards the 50-day EMA and the 148.529 support level, where buying interest could intensify.
The 14-day RSI reading of 63.41 suggests that the USD/JPY could aim for the 151.685 resistance level before entering overbought territory. Traders should keep a close eye on the FOMC interest rate decision, projections, and press conference, while also monitoring any intervention threats from the Japanese government that could impact the USD/JPY’s price action.
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