The USD/JPY pair traded firmer on Wednesday afternoon, supported mainly by the dovish Japanese central bank. However, all could change very quickly today as traders are getting ready for the outcome of the FOMC meeting.
Bank of Japan sounds dovish
During the Asian session, the Bank of Japan left monetary policy unchanged. Still, it sounded somewhat dovish, contrasting with other major central banks currently expected to tighten monetary policy.
Additionally, the central bank said that household spending remains weak due to coronavirus measures, state of emergency curbs. Lastly, people’s cautious activity under coronavirus is weighing on consumption.
Following the policy meeting, the Bank of Japan’s Haruhiko Kuroda reiterated that the central bank would ease policy further without hesitation if needed , sending the USDJPY pair above the 109.50 resistance.
FOMC to move the markets
Later in the day, the crucial FOMC meeting concludes, with investors expecting the Fed to announce when it is ready to scale back asset purchases, known as tapering. The official consensus thinks the month will be November.
However, considering the recent weakness in the labor market data and the recent sell-off in stocks, the Fed might delay the decision until December or the following year. That would be taken as a very dovish signal, potentially sending stocks higher but diving the greenback.
Additionally, the other components of monetary policy should remain unchanged, with the Fed most likely keeping long-term interest rates expectations near record lows.
Given the global outlook is that bit more uncertain with growth expectations being lowered and given the flow of economic data has been somewhat disappointing in the US, the FOMC is unlikely to spring another DOT shock. That could prove disappointing for those with long USD/JPY positions,
Daily chart remains neutral
The USD/JPY pair has not moved anywhere over the previous months, and the symmetrical triangle pattern remains intact. However, there are many false breaks above or below it, diminishing the importance of this pattern.
The immediate resistance seems to be near the 109.90 zone , where the 50-day moving average is converged with the bearish trend line of the triangle. Thus, the next target could be near 110.30, followed by the current cycle highs above 111.
Alternatively, if the USD drops after today’s FOMC decision, the support could be found at this week’s lows near 109.15, followed by the next demand zone at August’s lows of 108.80.