FOMC Meeting Minutes; USD/JPY Reaction and Outlook

FOMC Meeting Minutes; USD/JPY Reaction and Outlook

Today, the Federal Open Market Committee (FOMC) released the minutes for the Dec. 16-17 monetary policy meeting. As expected the FOMC appears to be gearing up for a rate hike by mid-2015, with earliest projections for April.

all but two participants anticipated that it would be appropriate to begin raising the target range for the federal funds rate during 2015. However, most projected that the appropriate level of the federal funds rate would remain considerably below its longer run
normal level through 2016. Most participants expected the appropriate level of the federal funds rate would be near, or already would have reached, their individual view of its longer-run normal level by the end of 2017. ” (FOMC Minutes)

FOMC Jan. 2015
(click to enlarge; source: FOMC minutes)

Rate Hike Projection: The chart above shows that most FOMC participants intend to vote on a rate hike around the middle of 2015. There are 2 participants who believe waiting until 2016.  Some however believe that inflation and wage growth has a chance to rise faster than generally anticipated. However, international conditions are a major downside risk to domestic growth and employment.

USD/JPY Reaction and Outlook:
The impact today’s minutes had on the USD was minimal. The April to mid-2015 projection was already priced in, and the USD/JPY is in a period of consolidation at the moment, so we would have needed a more hawkish tone for a bullish continuation. To the downside, it is still a bit early to say whether USD/JPY is ready to extend this week’s bearish correction attempt.

USD/JPY 1H Chart 1/7
usdjpy 1h chart 1/7
(click to enlarge)

Bearish Correction: Now, if USD/JPY closes below 119 today, there is a good chance the market is ready for another bearish correction swing in the very short-term, at least ahead of the NFP on Friday, which can shake things up again and help the market determine the length of the current correction.

To the downside, the pressure would first be at a common pivot at 118.70, then the 118-118.05 area, before opening the 116.80-117.00 area, which is a price top projection seen in the 4H chart below.

If price closes above 119.50 today, then USD/JPY’s consolidation might be over, and there should be at least pressure back towards the 120.74-85 resistance area.

USD/JPY 4H Chart 1/7
usdjpy 4h chart 1/7
(click to enlarge)

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