USD/JPY daily chart
The pair has been quietly making waves since last week, continuing its run above the breakout of the 200-day moving average (blue line). The rally from 150.00 to just over 154.00 is now also largely due to a significant increase in Treasury yields. The 10-year yield has risen from 4.15% to 4.40% in this period and that is also playing a role in supporting USD/JPY.
From a technical perspective, the pair is looking towards a test of the 155.00 mark now with the November high of 156.74 as a major resistance point.
But for trading this week, everything will depend on the post-Fed reaction. In particular, how the dollar and the bond market will react.
The Fed is going to cut rates by 25 bps tomorrow. But, will they be clear about a stop in January or even maybe later? That is the main question right now and traders will be looking for clues on that in tomorrow's statement as well as Powell's press conference.
Looking at Fed funds futures, the chance of a January stop is currently ~80% while the chance of a March rate cut is ~57%. There's a chance the Fed might want to take it to a meeting by meeting but amid the move in bonds last week, traders certainly aren't waiting around to find out. .
So, will the Fed confirm all of that? Or are they going to keep their options open and keep the dollar? If it's the latter, we may be expecting a Santa Claus rally for venture funds this year.
