dollar, yen

The Japanese yen is preparing for the second half of the week, related to central banks’ drama, firstly of the US Federal Reserve (Fed) and then Bank of Japan (Boj) to provide statement on Friday.

Yen is still being driven by Japan’s loose monetary policy with the actual amount of ¥80 trillion asset-purchases limit a year. Keeping such measures with the BoJ rate at 0.10%, historical minimum, leads to permanent yen weakness, steadily trading above the ¥120 level during last months against the dollar.

As there is not much expected from the Japan’s central monetary authority to change on its actual policy (and only slight reaction of the yen), traders look more on the Federal Open Market Committee (FOMC) statement to come out on Wednesday at 6PM GMT, providing also economic projections, with focus mostly on the gross domestic product (GDP) outlook, pretty overestimated before for the first half of this year, bringing a significant disappointment before.

Now we can expected the GDP forecast tobe lower again due to this H1 2015 correction of estimates, nevertheless some recovery has already been seen, mostly on the labor market, which is expected not to experience any negative adjustment to its outlook (unemployment rate forecast) for this year. Moreover, inflation also did not prove that the estimates should be markedly changed.

Now the focus will turn to the dot-plot change and September’s rate-hike hints as even the Fed’s Chair Janet Yellen expressed her wish for 2015 liftoff. Subsequent speech of Yellen will bring more light on the decision.

From the fundamental point of view, we don’t expect the yen to drop markedly lower, but there is no visible support for the currency to rise against the greenback, so we expect the pair to remain above ¥120 level, slightly bullish for the US dollar.

As for the technical point of view, pair’s next resistance level lies at ¥124.220 and further one above ¥125 handle at ¥125.650. Nevertheless, ¥123.619 seems to be a strong level for yen, holding the currency pair patient before the central banks’ serie.

In case of yen’s strengthening, take profit positions may be set on ¥122.875 level or lower at ¥121.914.

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