USD/JPY Hits Speed Bump at 150 Ahead of BOJ and FOMC, ASX to Open Lower

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Wall Street’s supposed rebound was stopped short after just two days on Tuesday, with heavy selling in the tech sector also weighing on the broader market. Nasdaq 100 futures led Wall Street lower with a -1.7% decline after failing to hold above the 20k milestone, the Dow Jones formed an inside day beneath its November low while S&P 500 futures erased all of Monday’s gains. This saw ASX 200 futures (SPI 200) dragged lower after the cash market printed a shooting star candle on Tuesday.

Nvidia shares were down -3.2% as its CEO, Jensen Huang, failed to convince investors it is in a good position to navigate the shift in the AI industry. Traders are also likely booking small profits ahead of the looming FOMC meeting, and a tad underwhelmed with peace talks between Russia and Ukraine. While Putin stopped short of a full ceasefire with Ukraine, he has agreed to a 30-day pause on striking any Ukraine energy infrastructure.

US import prices are perking up and were above expectations, rising 2% y/y in February (1.6% expected) or 0.4% m/m (-0.1%, prior upgraded to 0.4%). Canada’s headline inflation figures were also beats, which only adds to the case that central banks are less likely to be cutting rates much this year.

BOJ, FOMC up next

We have two powerhouse central bank meetings lined up over the next 24 hours, though neither are expected to change rates at this meeting. The BOJ are likely to hold their interest rate at 0.5%, and the Fed at their 4.25-4.5% target band. It then comes down to forward guidance as to whether markets will be in for any surprises.

Still, the 1-day implied volatility band for USD/JPY has increased to 167% of its 20-day average, which means there is ~70% chance of it closing within a 102-pip range according to options traders.

The Fed release their updated economic forecasts, which are of particular interest because it will be their first attempt to decipher Trump’s trade polices and their impact on the economy. Given tariffs are not yet implemented, it leaves wriggle room for negotiation. Therefore, I doubt the Fed will feel compelled to be overzealous with any updates to their forecasts given the uncertainty surrounding Trump’s tariffs. Despite data pointing towards soft growth and a refreshingly cooler set of inflation figures.  

Bloomberg pricing suggests just a 31.5% chance of a 12.4bp hike from the BOJ by June, so if there is to be any surprise at all today, it needs to be clues of an imminent hike.

Economic events in focus (AEDT)

• 08:45 – New Zealand current account
• 10:50 – Japanese Trade balance, Core Machinery Orders
• 13:30 – BOJ Monetary Policy Statement
• 14:00 – BOJ Interest Rate Decision
• 17:30 – BOJ Press Conference
• 21:00 – EU Core CPI
• 05:00 – Fed Interest Rate Decision, Staff Forecasts, FOMC Statement
• 05:30 – FOMC Press Conference

USD/JPY technical analysis

If the BOJ surprise with a hawkish meeting alongside a dovish one from the Fed, USD/JPY appears primed for a decent swing lower. A shooting star formed on Tuesday which closed on its 20-day EMA, and its high stopped pips shy of the 150 handle. However, this is not my base case.

We have already seen a decent drop from the January high, and prices found support around the 100-week EMA and 61.8% after a bullish divergence formed on the weekly RSI (2). Market positioning also points to a sentiment extreme for the Japanese yen on the futures market, which to me suggests we may be in for more of a rebound higher on USD/JPY before continuing lower further out.

Given the likelihood of some mean reversion ahead of the FOMC meeting and that fact 150 held as resistance yesterday, an initial dip lower seems likely. But bulls could seek evidence of a swing low above 148 in anticipation of a break above 150 for USD/JPY, with bulls then likely eyeing a run up to 151 and 152,

ASX 200 at a glance

• The ASX 200 closed higher for a third day, but only just – as most of the earlier gains of the day were erased and it formed a shooting star reversal day
• 8 of the 11 ASX 200 sectors advanced (led by utilities and real estate), 3 declined (led by consumer discretionary and financial)
• Yet the ASX cash index is expected to open lower, with Wall Street futures and SPI futures (-0.66%) lower overnight
• As noted in yesterday’s ASX analysis “the intraday bias remains bullish while prices hold above the 7822 swing low and for a move to the 7975 – 8000 resistance zone. A break beneath 7800 suggests the minor rebound from cycle lows may have completed, and we can refer to higher timeframe analysis for bearish targets”

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge