Forex Watchlist: USD/JPY’s Post-FOMC Direction

So the Fed did raise interest rates as expected but somehow the dollar FELL after the event. Is this a sign of the dollar’s future trend? Or are we actually provided with a better place to enter a long trade?

Unless you were too busy looking at interviews of the viral BBC family, then you should know that the Fed just raised its interest rate range by 25 basis points yesterday.

So why did the dollar DROP sharply after the event? Well, some analysts are pointing to good ol’ profit-taking while others believe that the Fed’s accompanying statements and Yellen’s presser that followed were a tad bit less hawkish than what they had expected. In short, the rate hike was waaaaay overhyped.

USD/JPY 1-hour Forex Chart

USD/JPY 1-hour Forex Chart

If we look at the 1-hour chart, we can see that the selloff stopped just at a mid-range support that’s been acting as area of interest since mid-January. What’s more, the 113.50 handle is also near the previous week high AND bottom weekly ATR that we had marked in this week’s Trading Prep!

USD/JPY Daily Forex Chart

USD/JPY Daily Forex Chart

Zooming in out to the daily chart prints an even prettier picture. See, it looks like the pair is hesitant to break below the area which is right at a rising trend line that hasn’t been broken since mid-September AND the 100 SMA that’s been hugging the pair’s uptrend.

Yesterday’s volatility aside, I don’t think the fundamental picture has changed for the dollar. The Fed is on track to raise rates two more times this year while the BOJ is still determined to push inflation higher with more monetary stimulus. The diverging path of central banks is enough to bet on an extended uptrend for the dollar, don’t you think?

For now, I’ll be keeping close tabs on how USD/JPY will react to the trend line and 100 SMA on the daily chart. If we continue to see red candles and it breaks lower, then I’ll think about maybe entering a short below the 100.00 major major support instead.

But if we see signs of a bounce from its current levels, then I’ll make plans to enter either a long trade to the 115.25 short-term range resistance or even the next major area of interest around 119.00.

What do you think? Will the dollar resume its uptrend against the yen now that we more or less know what the Fed is up to for the rest of the year?

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See also:
Latest Weekly Trading Prep
My Q4 2016 Forex Trade Review and Reflections
HLHB System’s 2016 Performance Summary
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