USD/JPY Holds Above 2018-Low As Fed Officials See Gradual Rate-Hikes

DailyFX Table

USD/JPY is back under pressure, with Japanese Yen outperforming against its major counterparts, but recent price action highlights the risk for a larger rebound in the exchange rate as the pair fails to test the 2018-low (108.28).

Fresh comments from Fed officials have done little to alter the near-term outlook for USD/JPY as Dallas Fed President Robert Kaplan wishes to normalize monetary policy ‘in a patient and balanced manner,’ while Atlanta Fed President Raphael Bostic sees ‘a slow gradual pace of raising interest rates’ as the central bank looks for signs of stronger inflation.

Fed Fund Futures

Keep in mind, Fed Fund Futures continue to reflect a greater than 70% probability for a March rate-hike despite the recent selloff in global equity prices, and the Federal Open Market Committee (FOMC) under Chairman Jerome Powellmay stay on course to further normalize monetary policy in 2018 as the fresh updates to the U.S. Non-Farm Payrolls (NFP) report boost expectations for stronger wage growth.

As a result, the failed run at the September-low (107.32) brings the 2017-range back in play, with USD/JPY at risk of staging a larger rebound as the Relative Strength Index (RSI) comes off of overbought territory.

USD/JPY Daily Chart

USD/JPY Daily Chart

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Keep in mind, the broader outlook for USD/JPY remains relatively flat as the RSI continues to track the bearish formation from the summer months, but the series of failed attempts to close below 108.30 (61.8% retracement) to 108.40 (100% expansion) region may spark a near-term rebound as the pair snaps the series of lower highs & lows from the beginning of the week.

Waiting for another close above the 110.00 (78.6% expansion) handle to spur a more meaningful run at the former-support zone around 111.10 (61.8% expansion) to 111.60 (38.2% retracement), with the next region of interest coming in around 112.40 (61.8% retracement) to 112.80 (38.2% expansion).