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USD/JPY Slumps Into Support, Fed May Slow Pace of Rate Hikes

USD/JPY Price and Chart Analysis

The Fed hiked rates by 75bps yesterday, for the second meeting in a row, and said that data dependent, another ‘unusually large increase’ could be appropriate at the next meeting in September. Despite warning that they will continue to hammer down on inflation by using oversized rate hikes, Fed chair Powell also said that as monetary policy is tightened further, ‘it will likely become appropriate to slow the pace of increases’ as the central bank assesses their impact. The market’s overall outtake was mildly positive, leading to a push higher in risk markets and a move lower in the US dollar.

Fed Raises Rates by 75 Basis Points at July FOMC in Fight to Quell Inflation

The latest Bank of Japan Summary of Opinions is released overnight and will give a closer look at the current state of the economy. While this release is not normally a market mover in itself, the report includes the latest Bank of Japan inflation and economic growth forecasts and can have a small effect on the Japanese Yen.

In the US today, the first look at US Q2 GDP is released at 13:30 UK time, while on Friday the latest Core PCE readings are released at the same time and 90 minutes before Michigan Consumer Expectations. All three releases have the ability to move the US dollar.

For all market moving data releases and economic events see the real-time DailyFX Calendar.

The technical outlook for USD/JPY is turning negative after an uninterrupted rally over the last 18 months. The spot price is now below the 20-day simple moving average and is touching the 50-day sma for the first time since late May, suggesting positive sentiment in the pair is waning. On the daily chart, USD/JPY just missed 135.00, a round figure number of note and a guard above a cluster of prior lows all the way down to 134.30. If the pair are able to take out these prior lows, then a further move lower to the 131.35 area is likely. To the upside, 13672 should be monitored.

USD/JPY Daily Price Chart – July 28, 2022

USD/JPY Slumps Into Support, Fed May Slow Pace of Rate Hikes

Retail trader data show that 30.28% of traders are net-long with the ratio of traders short to long at 2.30 to 1. The number of traders net-long is 11.07% lower than yesterday and 15.68% lower from last week, while the number of traders net-short is 0.78% lower than yesterday and 5.59% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/JPY-bullish contrarian trading bias.

What is your view on USD/JPY – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.