FOMC as expected markets extremely volatile during presser

As expected, the FOMC hiked rates today by 75 basis points. The statement was similar to that in July. However, the accompanying “dot plots” showing where FOMC members are heading with interest rates were much higher than the previous one. In addition, inflation forecasts have been revised upwards and growth forecasts downwards. See our full FOMC summary here. As a result of these actions, the US dollar continued its upward move as the DXY hit its highest level since June 2002 at 111.58. Additionally, both stock markets and bonds plummeted as yields rose. The 2-year yields hit an equally high 4.12% and the 10-year yields peaked at 3.64%. Gold also hit its lowest level since April 2020.

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However, during Fed Chair Powell’s subsequent press conference, traders reversed price action on many of these instruments in what might be termed “buy the rumor, sell the fact.” This was consistent with the price action following some of the recent FOMC meetings. As such, the US dollar pared earlier gains and stocks and bonds rallied. Gold surged $35 higher during the press conference.

With that in mind, let’s draw your attention to USD/JPY. Following the release of the FOMC statement, the pair received a bid to buy as both the US dollar and US yields started to rise. But during the press conference both the US dollar and yields started falling while USD/JPY reversed falling from 144.70 to 143.40.

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20220921 usdjpy30

Source: Tradingview, Stone X

On a daily time frame, the price was trading near September 7thth However, as mentioned, the high of 144.99 was pulled lower by the US dollar reversal. However, USD/JPY is still making higher lows as the price attempts to surpass recent highs. This sideways movement in prices over the past two weeks has allowed the RSI to relax and return to neutral territory. This could give the pair the all clear to move higher. Resistance above the 144.99 level comes in at 147.65, the August 1998 high. Initial support is at the September 9 lowsth at 141.50. Below this, the price may drop to support on July 14thth High of 139.39 and then a confluence of support at recent lows and an up sloping trend line going through 31st MarchSt at 135.80.

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20220921 usdjpy daily

Source: Tradingview, Stone X

As for other central bank meetings, markets will hear from the BOJ, SNB, Norges Bank, BOE and SARB within the next 20 hours. Will trader reactions be the same as the reaction to the FOMC? Possibly. Traders could be in for a wild Thursday. Manage risks accordingly!

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