USD/JPY Rate Outlook Hinges On Fed Rhetoric

USD/JPY carves a fresh series of higher highs & lows ahead of the Federal Open Market Committee (FOMC) Minutes, with the pair at risk for a larger recovery should a growing number of central bank officials prepare U.S. households and businesses for an imminent rate-hike.

Keep in mind, the summary of Chair Janet Yellen’s last meeting may ultimately generate a limited reaction as Fed Fund Futures now highlight a greater than 80% probability for a move in March, and more of the same rhetoric may undermine the near-term rebound in the dollar-yen exchange rate as the central bank struggles to achieve the 2% target for inflation.

Nevertheless, fresh comments from Fed Governor Randal Quarles, New York Fed President William Dudley, Atlanta Fed President Raphael Bostic and San Francisco Fed President John Williams, all 2018-voting members on the FOMC, may keep dollar-yen afloat as the central bank appears to be on track to deliver three rate-hikes in 2018. With that said, a batch of hawkish rhetoric may fuel a larger recovery in USD/JPY, but the broader outlook remains tilted to the downside as it snaps the 2017-low (107.32), while the Relative Strength Index (RSI) extends the bearish formation carried over from the previous year.

USD/JPY Daily Chart

Fresh data prints coming out of the U.K. may heighten the appeal of the British Pound as employment is projected to increase 180K during the three months through December.