After steadily falling volatility in December, USD/JPY finally woke up today thanks to the FOMC monetary policy statement. Will the consolidation break lead to a directional move or is it more choppiness ahead?
USD/JPY Consolidation Break?
Today, I’m checking out USD/JPY as the pair is starting to make some moves after over two weeks of tightening consolidation. Since the end of November, price action seems to be centered around the 113.50 minor psychological handle, likely on traders sticking to the sidelines ahead of today’s monetary statement from the Federal Reserve.
And as expected by the market, the Federal Reserve announced today that they would accelerate the bond tapering process (reducing Treasuries and mortgage-backed securities to $30B a month) and likely end in March rather than mid-2022. They also set expectations that the we will likely see three 25 bps rate hikes in 2022.
Overall, it looks like the the Fed seems to be very bullish on the economic outlook, stating that the economy is making rapid progress to maximum employment despite the rising pandemic concerns. This confidence with continued support through March (and an open door to keeping support around if conditions change) is likely why the markets went bullish on risk assets.
So, it looks like with the Fed looking to raise interest rates in the U.S. and the Bank of Japan likely to maintain its ultra-loose monetary policy (as they are less concerned with inflation for now), USD/JPY could continue the longer-term trend higher we’ve seen since the start of 2021.
So we’re looking at a potential longer-term long position in USD/JPY, and if the pair can sustain trade above the consolidation range between 112.50 – 113.50, then the odds grow this can turn into a directional move IF Omicron variant concerns start to fade more. We’ll also be on the lookout for any dips to play the uptrend at better prices if this scenario plays out as well.
What do you guys think? Is USD/JPY a buy now or are you waiting for another dip in the pair to the bottom of the consolidation range? Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.
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