USD / JPY consolidates above 109.00, just below multi-month highs

• USD / JPY has retraced from multi-month highs but is comfortably consolidating above the 109.00 level.
• The pair sees cautious trading ahead of key events later in the week, including the FOMC meeting on Wednesday.

The USD/JPY It has been trading flat for most of Monday’s session, amid trading conditions for the US dollar. The pair managed to hit fresh multi-month highs above last Tuesday’s high of 109.23 during the Asian session, but has since spent most of the rest of Monday consolidating between the 109.00-109.20 range.

Performance of the day

USD / JPY range fits with broader sense of consolidation in other asset classes; US equity markets are trading a bit higher, but mostly within recent ranges, WTI is a bit lower but far from lows, US government bond yields. In the long-term, they are slightly lower, although the 10-year yield is still above 1.60%.

The market’s lack of conviction is not surprising ahead of key events later in the week; Japanese trade and industrial production figures for the month of February will be released on Tuesday along with a speech by BoJ Governor Haruhiko Kuroda, whose remarks anticipate the BoJ rate decision on Thursday. It should also be noted that the national CPI data for Japan for the month of February will be published on Thursday.

There are also key risk events that stand out in the US US retail sales data for the month of January will be released on Tuesday at 12:30 GMT. Markets will await more evidence that the US consumer is in good health as an indication that the US economic recovery is on track.

Fed preview

Meanwhile, on Wednesday the FOMC publishes the result of its latest monetary policy decision; The bank is expected to keep interest rates in its lower zero band (0.0-0.25%) and the asset purchase rate stable at $ 120 billion per month (of which $ 80 billion is US government bonds). .UU.).

The Fed statement and Fed Chairman Jerome Powell’s comments at the press conference are likely to remain in the usual subdued tone; that is, there will be no rate hikes until the bank has fulfilled its updated dual mandate (i.e. full employment and inflation that is moderate and sustainable above 2.0%), something the Fed will likely reiterate is still a long way off, and there will be no gradual reduction in asset purchases. until substantial progress has been made toward his dual tenure (something Powell will also likely say is a long way off).

The Fed will release new economic projections that will be examined more closely than usual; Officials have been talking about how they expect inflation to pick up in the near term and updated inflation forecasts will formalize such expectations. The updated dot plot is also noteworthy; Markets have anticipated their expectations of the first Fed raise as early as late 2022 / early 2023, even though the old Fed dot plot does not forecast any increases until 2024. Perhaps the new dot plot you could foresee an increase in 2023 (if not, that would be moderate).

In the meantime, traders will also be on the lookout for more information on whether, when and how the Fed might respond to further increases in US government bond yields, as well as any hints on conditions the Fed might want. Watch Before You Reduce Asset Purchases: You are more likely to learn more about the former than the latter, as the Fed will likely want to prevent yields from rising.

Some technical factors are also worth considering; The bank SLF relief (which means they don’t have to hold capital reserves for their cash holdings) will expire this month and the Fed must decide whether to extend it. Otherwise, this could cause some market trouble as banks rush to meet their new higher capital requirements. There are also rumors that the bank could modify the interest rate of excess reserves (IOER), which is a tool that the bank uses to keep the federal funds rate within its target band; if they do, they will insist that this is not an adjustment. to monetary policy, rather a technical adjustment to maintain the policy.

Technical Levels