Dollar moves towards 50% retracement on Yen; FOMC verdict eyed
January 30th - The dollar has continued to post gains through the week’s opening session as traders speculate over the likely future direction of US Monetary policy after tomorrow’s meeting of the FOMC. Although a 25 basis point hike is being seen by the majority as a given, it’s the direction beyond this that will really make a difference and with US consumption continuing to look robust there’s certainly some justification for the Fed to maintain its use of this tactic to draw more funds into the country, away from the lower yielding currencies such as the Yen whilst it can. There are still no concrete signs that the Bank of Japan is in a position to start tightening its monetary policy just yet and industrial production numbers released overnight failed to meet with expectations, underlining the fact that the economy remains vulnerable. However, with the stock market continuing to recover from the recent sell off and the core consumer price index posting consecutive monthly gains last week, the case for better yields on Yen deposits may well now be building. Some see USD JPY at something of a key juncture now after there’s been close on a 50% retracement from the mid-January lows. Tomorrow’s US monetary policy news will likely provide the first directional information, but key numbers due from Tokyo around the month end – including construction, employment and housing – may well start to build a stronger case for the Yen as the week progresses.
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