Two trades to watch: USD/JPY, Oil

USD/JPY pulls back ahead of Fed rate decision

USD/JPY is falling lower after booking 0.8% gains in the previous session. The pair trades over 4.5% higher this month alone.

Central bank divergence has lifted the pair to a 23-year high as the BoJ remains one of the most dovish major central banks and as the Fed considers hiking interest rates by 75 basis points.

The CME Fed Watch tool shows that the market is pricing in a 98.1% probability of a 75 basis point hike, which would be the first since 1994.

In addition to the rate decision, Fed forecasts are expected to see CPI upwardly revised and GDP lowered.

A 75 basis point rate hike could boost the pair. However, a 50 basis point hike could see the pair initially fall on disappointment.

Where next for USD/JPY?

USD/JPY has been trading within a rising channel since the beginning of the month, hitting a 23-year high of 135.50 overnight, before easing lower.

Despite the pullback, the price remains within the rising channel supporting the bullish outlook.

The pair is testing the 20 sma, with a break below here opening the door to 134.00 the rising channel support. A break below here could suggest that a near-term top has formed.

On the upside immediate support is seen at 135.10 ahead of 135.50 the 2-decade high and mid-point of the channel, ahead of 136.00 round number and 137.3 the upper band of the rising channel.

Oil steady ahead of Fed rate decision, EIA inventories

Oil prices are holding steady after earlier losses after the US said it was selling 45 million barrels from its strategic reserves as part of the historic SPR sale previously announced by the Biden administration.

Oil prices are instead holding steady ahead of the Fed rate decision as hot inflation has raised the prospect of a 75-basis point hike.

An aggressive Federal Reserve will raise concerns that the US economy is heading for a recession, which will weaken demand. The move may also push investors away from riskier assets such as oil toward safe-havens.

Further COVID breakouts in China are adding to the downbeat mood towards oil. Although OPEC+ stuck to its forecast that global oil demand will exceed pre-pandemic levels in 2022.

API data revealed a build of 0.736 million barrels for the week ended June 10. EIA data is due later.

Learn more about trading oil

Where next for WTI crude oil?

WTI oil found support on the 20 sma at 115.00 and rebounded higher, retaking 116.30 the March 24 high.

The RSI remains in bullish territory, suggesting that there could be more upside. Should support hold, the price could aim back towards 122.00 the June high.

Failure for the support to hold could see oil prices head back towards 110.00 the June low which would create a lower low and expose the 50 sma the 50 sma 108.60.

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.