- USD/JPY continues to move higher and, just below 118.50, is on track for an eighth straight day in the green.
- The pair is targeting a break above late 2016/early 2017 highs at 118.60.
- Markets are willing to take a risk ahead of the Fed’s announcement amid signs of progress in Russia-Ukraine peace talks.
The upward trajectory of USD/JPY during the last few sessions where the pair broke through the key resistance at 116.40 continued on Wednesday, with the pair coming close to reaching 118.50 for the first time since January 2017. Trading just below the mid-round figure, the pair is up another 0.2% on the day and is set for an eighth straight day of gains during which the pair is up over 3.0%. The strong rally has been fueled by an equally steep rise in long-dated US bond yields over the same period, with the 10-year yield approaching 2.20% on Wednesday from a low of 1.60% early last week. .
Markets are in a very dodgy mood on Wednesday in the run-up to the Fed’s policy announcement amid signs of progress in Russia-Ukraine peace talks (admittedly, reports have been mixed), which reduces the demand for haven assets such as US bonds. While this also reduces the safe-haven appeal of both the USD and JPY, the yen is more affected given the upward pressure on US yields, making it a comparatively less attractive investment. The fact that the Fed is expected to implement its first 25bp rate hike in three years later also helps keep yields and USD/JPY supported.
Any aggressive surprise from the Fed, perhaps in the new Fed dot plot, or perhaps in the tone of Fed Chairman Jerome Powell’s post-meeting press conference, could be enough to trigger further rise in US yield. That could see USD/JPY break past late 2016/early 2017 highs at 118.60 and move towards the 120.00 mark and beyond. Conversely, if aggressive line expectations are not met, profit taking on the recent rally could see USD/JPY pull back quickly to test previous highs in the 116.40 area, which should not offer strong support. .
Technical levels
Source: Fx Street
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