Japanese Yen Slumps Ahead of BOJ’s Rate Decision, Fed’s Rate Hike Continues to Support Dollar

Japanese Yen extended losses against its American counterpart on Friday after having suffered the biggest one-day decline in the previous session. While the Yen was awaiting the Bank of Japan’s rate decision, the dollar continued to strengthen on the back of following the Federal Reserve’s decision to raise interest rates.

The pair USDJPY rose nearly 0.2 percent to trade around 111.13 on Friday after dropping 1.2 percent in Thursday’s session – the most since January. The U.S. central bank on Wednesday lifted its benchmark interest rate to between 1% and 1.25% and said it would gradually shrink its massive $4.5 trillion balance sheet.

Meanwhile, the BOJ will conclude its two-day meeting today with markets expecting that the central bank would leave policy settings alone as Japan’s consumer price growth is still far from the bank’s 2% inflation target. The focus will be on Governor Haruhiko Kuroda’s press conference which comes after the results of the meeting.

Investors were waiting for clues from the BOJ’s Governor about an eventual exit from stimulus after the central bank upgraded its assessment of the economy from “recovery” to “expansion” at its last meeting in April. That was the first upgrade in the last nine years after BOJ considered improving exports and domestic consumption.

Later on the day, U.S. Census Bureau is due to report data on Building Permits for May, which is expected to point to a rise of 1.25 million permits issued last month after an unexpected slump in April. Data on housing starts is also anticipated to show an increase of 1.23 million units in May. In the month before, housing starts decreased by 2.6% from March to hit a seasonally adjusted 1.172 million units.

U.S. data released on Friday also features reports on Consumer Sentiment, Labor Market Conditions and Inflation Expectations published by University of Michigan.

Fig: USDJPY H4 Technical Chart

USDJPY has been tracing a strong uptrend after rebounding from as low as 108.810. The price action has not only breached both the short-term and long-term MAs from below but has also broken out of a firm resistance at 23.6% Fibonacci level – where it had to reverse lower last Friday. Both ADX and RSI indices are soaring strongly, suggesting a strengthening bullish momentum in the market. Further advances are expected.

Trade suggestion

Buy Stop at 111.200, Take profit at 111.600, Stop loss at 111.000

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