At the most anticipated Federal Reserve meeting since November, the Fed pushed out the end of economic assistance from June to March and increased its rate hike prediction for 2022.
In keeping with market expectations, the policy changed little, affecting Treasury rates and the Dollar.
The Fed’s message was so detailed that it could implement a significant rate hike without using its inflation calculations, and the markets responded as if nothing had changed.
In response to the current epidemic rise, traders sought sanctuary in US debt and the Japanese Yen, which saw modest gains following the Fed meeting.
The Dow and S&P 500 rose on Wednesday before falling on Thursday. The NASDAQ fell 2.4% on Wednesday and 2.5% on Thursday.
After six years of negative rates, the Bank of Japan decreased part of its epidemic business, helping zero market interest.
The USD/JPY entered the week at 113.38 and finished at 113.36 on Friday morning, after closing at 114.05 on Wednesday.
Relatively safe US Treasury rates and a stronger Yen were pushed lower by rising COVID cases globally, mainly of the less hazardous Omicron form.
Japan’s data was bland. Industrial production decreased by 4.1% in October versus the 4.7% expected. In November, exports grew less than expected while imports rose more.
The Fed conference overshadowed the week before Wednesday. This month’s bond purchasing program will finish in mid-March. Most participants expected three Fed funds rate increases by year’s end, with a median of 0.9%.
The PPI on Tuesday & Retail Sales on Wednesday had significant outcomes, but the market seemed unmoved ahead of the Fed meeting. In November, producer prices rose 9.6% year-on-year, a new high, assuring further consumer price increases.
The PPI for October was changed from 8.6% to 8.8%. While November retail sales were healthy, they were less than expected. Product shortages and rising prices undoubtedly prompted early holiday shopping.
The Fed’s strategy has shifted from economic stimulus to inflation management, but the market hasn’t noticed. The epidemic strikes again.
But unlike other panics, this one will be shallow and short-lived. The strain is weak and quickly dissipates in South Africa, where the Omicron variety was found. The markets will receive the word in a few weeks, and the USD/JPY will rebound.
The fundamentals of economics and finance still apply. The Fed, the Bank of England, and eventually the Bank of Canada are tightening. The Bank of Japan and the ECB are not. That should help currencies during the first part of the year.
The USD/JPY is now under the influence of risk-aversion, albeit not as intense or widespread as in the past.
The Fed’s rate forecasts will likely be matched by Omicron worries and new government economic limitations next week.
The November National CPI may show how worldwide inflation assists in combating deflation. BOJ policy remained unchanged.
The total Q3 GDP, November Durable Goods Orders, and Personal Income and Expenditure numbers are all due out. These figures are redundant and will not influence the markets.
By contrast, the Fed’s apparent determination to raise US interest rates negatively affects the USD/JPY.
Technical Outlook For USD/JPY
USD/JPY CHART Source: Tradingview.com
Technical factors support a rise in USD/JPY, notwithstanding the new outbreak of pandemic risk aversion.
This week’s lack of end-to-end volatility kept the MACD and RSI neutrality. Wednesday’s dip prevented the MACD from crossing the signal line.
In December, both indications moved in the same direction, pointing to a firmer USD/JPY. The volatility implies that the area over 113.00 will be the testing area for an eventual climb.
The 21-day MA was 113.78, and the 50-day MA was 113.83 on Friday. Their ability to resist encroachment is uncertain, given their ineffectiveness on Wednesday and Thursday. If the USD/JPY falls below 112.00, the 100-day MA at 112.00 will provide significant support.