No momentum from the Federal Reserve

Despite clear indications from the Federal Reserve to tighten monetary policy, the USD / JPY remained stable in a range between the support of 109.11 and the resistance of 109.92, where it settled at the time of ‘write these lines. Risk aversion in the markets has increased the opportunity for the Japanese yen to maintain its recent gains against the rest of the other major currencies. The Delta variant and the return of restrictions threaten the future of the global economic recovery.

Citing progress in meeting its goals of maximizing employment and stabilizing prices, the US Federal Reserve hinted yesterday that a reduction in asset purchases by the US central bank could begin in the near future. Therefore, the Fed, announcing its latest monetary policy decision, said that “a moderation in the pace of asset purchases may be warranted soon” if progress towards its dual goals continues as planned.

The US central bank is currently planning to continue buying bonds at a rate of at least $ 120 billion per month, but scaling is expected to begin later this year.

In his post-meeting press conference, Fed Chairman Jerome Powell said the central bank could start cutting asset purchases as early as its next meeting in early November. “While no decision has been made, participants generally felt that as long as the recovery stays on track, a downsizing process that ends in the middle of next year is likely to be appropriate,” said Powell. .

Powell also said more significant progress has been made on the Fed’s inflation target, while “the test of further substantial progress in jobs is nearing completion.”

Comments on reducing asset purchases came when the Federal Reserve announced its widely anticipated move to keep the target range for the fed funds rate at 0 to 0.25%. The bank also reiterated that it expects it to be appropriate to maintain this target range until labor market conditions reach levels consistent with maximum employment and inflation is over. goes from slightly exceeding 2% for a while.

However, the latest Federal Reserve forecast showed that most officials now expect to hike interest rates next year compared to previous expectations calling for a first rate hike in 2023.

At the same time, Fed policy makers have also revised the forecast for US GDP growth in 2021 to 5.9% from 7.0%, while the forecast for GDP growth in 2022 has been revised to the increase to 3.8% against 3.3%. . Core consumer price inflation is expected to hit 3.7% this year, compared to 3.0% forecast in June. Price growth is expected to slow to 2.3% in 2022, still above the Fed’s 2% target.

In its policy statement, the Fed called inflation “high”, but continued to attribute price growth to “transitional factors”.

Technical analysis of the pair

On the daily chart, attempts by the USD / JPY to break through psychological resistance at 110.00 are still weak, encouraging buyers to buy. This could push the currency pair towards the resistance levels at 110.65 and 111.20, if investors regain an appetite for risk, as concerns over Chinese corporate debt and coronavirus variants have subsided. On the downside, the 109.35 and 108.80 support levels will remain crucial for the bears.

The currency pair will be affected today by risk appetite and the reaction to weekly jobless claims and PMI readings for the manufacturing and service sectors.