USD/JPY forecast hinges on FOMC rate decision

The USD/JPY was lower at the time of writing in this first half of Wednesday’s session, giving back some of its gains from Tuesday. The UJ is likely to remain in a holding pattern on day until the Fed’s rate decision at 14:00 ET (19:00 BST) with Powell’s press conference taking place 30 minutes later. Judging by some bullish price action and uncertainty over the magnitude of the rate cuts, the short-term USD/JPY forecast could turn bullish if the Fed opts for 25 basis points instead of 50.

USD/JPY could rise to 145.00

This week's release of overall stronger US data has not led to any changes in market’s pricing of the size of the rate cut, currently favouring a 50-basis point cut with a 65% probability. Thus, the USD/JPY could rally in case the Fed opts for 25 basis point cut today.  As well as the rate cut itself, the USD/JPY forecast will be influenced by the language the Fed chooses in today’s policy statement, press conference and the dot plots. So, it is possible that the USD/JPY's downtrend resumes after potentially rising on the back of the rate decision itself.

USD/JPY forecast: technical analysis

From a technical point of view, there is a possible reversal formation in the making on the USD/JPY. It all started with a hammer candle off that 140.00 support on Monday, followed by some bullish follow-thru on Tuesday. We have consequently seen the formation of a 3-bar reversal pattern. Meanwhile, there has also been a positive divergence observed on the RSI indictor, which had made a higher low near oversold levels.

Source: TradingView.com

Taking all these factors into account, I wouldn't be surprised if we see a quick rally to 145.00 from here. However, if the Fed cuts by 50 basis points, then 140.00 could easily be revisited, and keeping intact the ongoing bearish USD/JPY forecast.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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