Here we go for a very important night across main markets. Apologies for the confusion about timing on the FED meeting, Jerome Powell is set to speak at 11:10pm. Liquidity remains thin as we are reaching the end of the seasonal summer down swing, however this could change today. What we are tracking for is whether we get any hints or clarity around forward guidance from Powell and the FED. US equities are soaring at record highs, especially looking at tech stocks. There is clearly an expectation on Powell delivering the policy changes the market wants and is hoping for. Buy the rumor sell the news coming into play. If we get smoke and mirrors, or in general an avoidance around delivering the change then expect the USD to rally out of the announcement and downside on risk assets. If Powell does deliver on the policy changes, expect further USD weakness. Markets may also turn risk off coming out of the announcement.
As we know professional hedgers and funds have been building DXY long positions fairly heavily over the past month (please see the latest market update video). The question is, where is the turning point on the USD.
If markets turn risk off expect money to flow into the safe haven JPY.
USDJPY – Technical Analysis
The pair have potentially created a head and shoulders formation. The market has seen a strong rejection around the 23% FIB retracement zone. In the short term, the USDJPY could be trading between a bear flag structure.
Plan for this set up is to wait for a break below 105.90. IF we see a structure breakdown we will enter a sell position. Stop loss will be set above 106.55 and take profit left to run targeting the 104.60 level.
This set up is ONLY valid if the market breaks below the bear flag structure. We would recommend watching the market if you are looking to enter the position.
Keep in mind, IF you see USD weakness coming out of the announcement, you will want to close out any USD long positions you have. Please manage your account throughout the night.