FOMC minutes for the August Monetary Policy meeting, released today, showed that members of the committee are moving towards a rate hike sooner rather than later than previously anticipated.
Policy voters ” noted that if convergence toward the committee’s objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodations sooner than they currently anticipated.” (FOMC Meeting Minutes). It was not clear which exact members of the Fed are pushing for the earlier “normalization” of rates, but it does sound like there is a consensus to quickly end QE, probably in the next meeting. Then it is all about how and when the FOMC will raise its benchmark interest rate from its historic low near 0%.
This is a relatively hawkish statement. To me, it is in-line with the hawkish expectations that have been fueling USD-strength. The USD/JPY for example was already building up a bullish case ahead of today’s minutes, and continued to rally afterwards.
USD/JPY Building a Bullish Case; FOMC Minutes Ahead (8/20)
(click to enlarge)
The rally has put the 4H chart in an overbought condition as the RSI reading pops above 70 and even above 80. As price approaches the March-April highs in the 103.75-104.10 area, we should anticipate some sellers especially with the 4H RSI in overbought territory.
The daily RSI is also in the overbought territory. It’s ability to push so high is a sigh of bullish momentum to come, but again, it can be seen as an overbought signal in the short-term.
(click to enlarge)
If price fails to break 104 for example, and pulls back. Let’s monitor the 102.80-103 area. If USD/JPY can hold above this area, we would have more evidence of a bullish trend developing, which would put pressure not only back on the 104 level, but would also open up the 105.44 high on the year to the bullish outlook.
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