This morning, the price movement of the US Dollar has declined by 0.50% and over 65 PIPs - this measures as a 62% price correction compared to the previous day. Yesterday, we could see a bullish candlestick form successfully but the price has quickly corrected downwards this morning as we edge towards the Fed rate announcement.
Traders are now questioning whether the price will continue to decline or whether the movement is simply a price retracement as traders break until they obtain further confirmation from the Fed.
Currently, when looking at the 1-hour and 4-hour charts it can be seen that the price has not formed a lower price wave but has only declined to the “resistance flipped to support” level. The price movement is likely to be strongly dependent on this afternoon’s Fund rate, projections and press conference. Currently, the exchange rate remains above moving averages and the volume weighted average price.
Regarding the Japanese Yen Index, it can be seen that the Yen has gained back some previously lost value over the past 5 days. The index has increased by 2.08% over the past 4 days. However, the bullish price movement cannot be seen on the USD/JPY as the Yen was overpowered by the bullish US Dollar. Traders can monitor both the USD and Yen indexes to obtain a stronger price indication going forward. The US Dollar Index is currently slightly lower this morning mainly triggered by a strong increase in the Euro.
Currently, the market is evaluating the situation surrounding the increase in inflation and the possible reaction from the Federal Reserve. So far, economists and analysts have advised that the Fed is likely to increase rates by 0.50%. However, since inflation statistics were released on Friday the predictions of some have changed. For example, JP Morgan, Barclays, Goldman Sachs and Jefferies have all amended their predictions to a 0.75% rate hike. So the question remains as to how hawkish the Federal Reserve will be. This is likely to have a significant impact on the US Dollar.
With regards to the Japanese Yen, the market will also be looking towards the Bank of Japan's meeting scheduled for Friday morning. Markets are wondering whether the BOJ will take stronger action to protect the value of the Yen after signs of disapprovement from the central government. For example, in an interview with local media, Japan's Finance Minister Mr Suzuki confirmed that the government was worried about the rate of depreciation of the Yen, as well as the increased volatility, which could disrupt the stability of Japan’s economy.
The minister also advised that a decision has already been made to take the necessary steps to protect the currency, and that it will be made public soon. According to experts, market drivers are waiting for the start of interventions and are trying to reduce the number of transactions with the Yen until then.
It should also be noted that the US is scheduled to confirm its Retail Sales figure which is predicted to decline to 0.1% from 0.9%. The Retail Sales release is also normally able to create high volatility, however, this may be overshadowed by the Fed.
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