- The USD/JPY price analysis indicates a weak dollar as market participants gear up for a likely Fed rate cut.
- A dovish Fed tone could further weigh on the greenback.
- Traders are uncertain about Japan’s politics as the country prepares to choose a new prime minister.
The USD/JPY price analysis indicates a weak dollar as market participants gear up for a likely Fed rate cut on Wednesday. Meanwhile, the yen gained but remained fragile amid political uncertainty in Japan. A new Prime Minister could shift the outlook for monetary policy in the country.
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The dollar collapsed against most of its peers on Tuesday as markets awaited the Fed’s decision on Wednesday. Policymakers will likely vote to lower borrowing costs by 25-bps. At the same time, traders will watch the tone during the meeting for clues on future rate cuts. A dovish tone could further weigh on the greenback.
“Focus remains on the Fed meeting on Wednesday,” said Mohit Kumar, strategist at Jefferies. “Key would be Powell’s tone.”
“If Powell puts more emphasis on inflation risks or the uncertainty surrounding the growth and inflation outlook, we could see the market paring back some of the rate cut expectations,” he added.
However, unlike most other currencies that are gaining amid dollar weakness, the yen remained muted. Traders are uncertain about Japan’s politics as the country prepares to choose a new prime minister. Moreover, the new leader could change the outlook for Bank of Japan policy tightening.
USD/JPY key events today
- US core retail sales m/m
- US retail sales m/m
USD/JPY technical price analysis: Bears hold the reins within consolidation
On the technical side, the USD/JPY price trades below the 30-SMA, with the RSI under 50, suggesting bears are stronger. However, on a larger scale, the price has remained in consolidation between the 146.50 support and the 149.00 resistance levels. During this time, he price has chopped through the 30-SMA, showing almost equal strength for bears and bulls.
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At the moment, bears are stronger within the range. Therefore, the price will likely soon retest the range support. A break below this level would allow USD/JPY to start a downtrend. After such a long period of consolidation, there is a high chance the next move will be impulsive.
A bearish break would allow the price to retest the 144.00 support level. On the other hand, if the support holds firm, bulls will return and the price will continue its sideways move.
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