JPY falls to 2-week low, FOMC meeting next

The Japanese yen has steadied on Wednesday, after sustaining sharp losses a day earlier. Currently, USD/JPY is trading at 108.73, up 0.03% on the day.

Japanese Retail Sales for March were stronger than expected, with an impressive gain of 5.2%. This beat the forecast of 4.6% and ended a nasty streak of three straight declines. With Tokyo, the largest city in the country, currently under a lockdown, consumer spending will be hampered and this will likely be reflected in the April Retail Sales report.

Will FOMC stay the dovish course?

The US economy continues to show impressive growth, and with inflationary pressures getting stronger, there has been some talk that the Fed may need to reconsider its ultra-accommodative monetary policy. However, the Federal Reserve has said on a consistent basis that it is not concerned about the economy overheating and that any spike in inflation will be temporary. This is a clear message that QE will not be reduced for a while yet and it seems premature to expect even a hint of a taper at tonight’s FOMC meeting (18:00 GMT).

The market seems to have bought into the Fed’s message that even though inflationary pressures are growing, QE will not be reduced for a while yet. In follow-up comments to today’s meeting, Fed Chair Powell is likely to sound positive about the recovery but simultaneously state that the economy is still in recovery mood and the Fed needs to keep its foot on the pedal. Unless the Fed surprises with a more hawkish rate statement than expected, we can expect the FOMC meeting to be a non-event for the US dollar.

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USD/JPY Technical Analysis

• USD/JPY is testing resistance at 108.65. Above, there is resistance at 109.43
• There is support at 107.29, followed by support at 106.71

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