Dollar rises ahead of Fed meeting

The US dollar is showing strong gains on Wednesday. Currently, USD/JPY is trading at 104.05, up 0.41% on the day.

Dollar waits for cue from Fed

All eyes are on the FOMC’s first meeting of 2021, which will wrap up with a rate statement (19:00 GMT) and a follow-up press conference with Fed Chair Jerome Powell (19:30 GMT). There is an expectation in the air that the dollar could show some volatility in response to the message from the Fed. Of course, the million-dollar question is in what direction. Where the greenback moves next will depend on what message the Fed sends to the markets, or to be more precise, how the markets react to the Fed.

There has been some talk about the Fed tapering its bond-buying, with some regional Fed presidents musing that if the economy shows enough improvement, tapering could begin late in the year. Will Powell echo this sentiment? If yes, the markets could respond with a taper tantrum which would boost US yields and the US dollar. The markets will also be scrutinizing the rate statement and listening to Powell’s press conference as to how optimistic and confident the Fed sounds about the recovery – if the Fed is more cautious/pessimistic than expected, investor sentiment towards the dollar could fall. Whatever way the Fed goes, it should make for an interesting day in the currency markets.

On the heels of the FOMC meeting, the US releases first-estimate for Q4 on Thursday (13:30 GMT). After the recent double-digit readings we’ve seen, GDP is expected in at a respectable 4.2%. The GDP report could affect the movement of the USD/JPY on Thursday.

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USD/JPY Technical Analysis

• USD/JPY is testing resistance at 104.13. The next resistance line is at 104.49
• The pair has crossed above the 50-day moving average (MA). A close above this line is a bullish technical signal
• There are support levels at 103.37 and 102.97

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