USDJPY bullish breakout potential as Fed gets more hawkish

So, the US Federal Reserve raised interest rates 25 basis points yesterday, as had been widely expected. The FOMC finally decided to drop the word “accommodative” in reference to its monetary policy stance thanks to inflation being around the target, unemployment below the long run level and not to mention the plethora of fiscal stimulus flowing through the economy. The FOMC’s dot plots point to one more rate increase in December, three in 2019, and one more in 2020. Our full FOMC recap is HERE.

With the market being a little bit more convinced that the December rate increase is now very likely, the Dollar Index has risen as a result. However, the USD/JPY was once again unable to break through that 113.00 resistance level in the immediate aftermath of the Fed’s rate hike decision yesterday. This has led to some analysts calling for a double top reversal pattern. However, thus far, the selling pressure has been mild and so a near-term breakout still remains on the cards. Indeed, the long-term charts still point to higher prices with the monthly showing a clean breakout above a long-term bearish trend line. We therefore anticipate to see higher prices until the long-term charts suggest otherwise.

On the lower daily time frame, it may be reasonable to expect the USD/JPY to pause and pullback a little from the 113.00 resistance. But with the underlying trend being bullish, we can’t possibly be bearish yet – not until there a distinct reversal pattern is formed or a breakdown in the market structure of higher highs and higher lows is seen. Specifically, if rates were to eventually break below 110.40 – the last significant low prior to the latest rally – only then will we get bearish. That’s unless something else happens at higher levels first.

But just to be clear, we are looking for a bullish breakout here. That’s not just because of technical reasons. The Fed and BoJ’s diverging monetary policies means fundamentals point to significantly higher prices in the long term as US yields become more attractive than their Japanese counterparts with rising interest rates.

Source: eSignal and FOREX.com.

StoneX Financial Ltd (trading as "FOREX.com") is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, FOREX.com does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date.

This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it. No opinion given in this material constitutes a recommendation by FOREX.com or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although FOREX.com is not specifically prevented from dealing before providing this material, FOREX.com does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 74% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Financial Ltd. StoneX Financial Ltd is a company incorporated in England and Wales with UK Companies House number 05616586 and with its registered office at 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is authorised and regulated by the Financial Conduct Authority in the UK, with FCA Register Number: 446717.

FOREX.com is a trademark of StoneX Financial Ltd. This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy. FOREX.com products and services are not intended for Belgium residents.