- The US Federal Reserve hinted its aggressive tightening cycle might end.
- Risk aversion plagued the markets as regional US bank shares declined.
- The cautious risk-off mood strongly supported the Japanese yen.
Today’s USD/JPY forecast is bearish. On Thursday, the dollar fell against most major currencies after the Fed hinted its aggressive tightening cycle might end. However, risk aversion plagued the markets as regional US bank shares declined.
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As anticipated, the Fed lifted its benchmark overnight interest rate by a quarter percentage point. But in doing so, it removed language from its policy statement, indicating that it “anticipates” the need for additional rate increases.
This caused the US dollar to fall broadly and Treasury yields to decline. Traders interpreted the comments as a sign that the peak in US rates had been hit and moved to price in rate cuts for later this year.
The probability that the Fed will start reducing rates in June is currently slightly higher than 10%. At the same time, money markets anticipate rate reductions of about 80 basis points until the end of the year.
Long-standing worries about a banking sector crisis were made worse by the announcement that PacWest Bancorp is considering strategic options. This announcement added to predictions that the Fed will soon have to start loosening monetary conditions.
In Wednesday’s after-market trade, shares of PacWest and several other regional lenders in the United States fell.
The cautious risk-off mood strongly supported the Japanese yen, a typical haven during market turbulence. It increased by over 1% on Wednesday due to falling US Treasury yields.
USD/JPY key events today
Investors will focus on the US initial jobless claims report. They will look for signs of further easing in the labor market to support rate-cut expectations.
USD/JPY technical forecast: Bears to pounce 134.00
In the 4-hour chart, USD/JPY has made a whiplash move. It initially made an impulsive bullish leg before falling sharply and breaking below the 30-SMA. Bears came in at the 137.75 level and broke below the 135.01 support.
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There has been a sudden shift in sentiment to bearish because the RSI has gone below 50. At the current level, the price will likely retest the 135.01 level before heading for the 133.50 support level. The bearish bias will strengthen if the price breaks below 133.50.
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