USD/JPY declines as the USD consolidates ahead of the Fed meeting

• USD/JPY slightly declined towards 147.70, and bulls seem to be losing traction.
• US yields are rising as markets await a hawkish pause from the Fed on Wednesday.
• Investors also await fresh macro forecasts and revised dot plots from the Fed.

At the start of the week, the USD/JPY saw some losses and declined to 147.70, mainly driven by the USD trading somewhat weak against its rivals. Both the Federal Reserve (Fed) and Bank of Japan (BoJ) will meet this week on Wednesday and Friday but no hikes are expected from either bank. Powell and Ueda’s stances will be closely watched. No relevant data will be released on Monday.

On the Fed’s side, markets anticipate that the bank will announce a hawkish, similar to the June meeting decision, in which the Fed decided to hold rates steady to asses the lags of monetary policy and their impact on the US economy. In that sense, the bank will try to convince the market that they will remain data-dependent but that the tightening cycle isn’t over.

In line with that, US Yields are seeing gains across the curve and remain high. The 10-year bond yield rose to 4.33% while the 2-year yield stands at 5.06%, up by 0.50%, and the 5-year yielding 4.46%.

On the other hand, the Bank of Japan (BoJ) has clarified that a monetary policy shift will only be considered once local wage and inflation metrics align with their anticipated outcomes. In addition, amid the local economy's ongoing struggles and the added weight of Chinese economic troubles, the central bank remains hesitant to pivot its dovish stance. In that sense, the policy statement will be closely watched for clues on forward guidance.

USD/JPY Levels to watch 

 The technical analysis of the daily chart suggests a shift towards a neutral to a bearish outlook for USD/JPY, with indications of bullish exhaustion. Having turned flat in positive territory, the Relative Strength Index (RSI) suggests a potential market equilibrium with balanced buying and selling pressure. The Moving Average Convergence (MACD), on the other hand, presents flat red bars. Furthermore, the pair is above the 20,100,200-day Simple Moving Average (SMAs), suggesting that the bulls are firmly in control of the bigger picture.

Support levels: 147.00, 146.60 (20-day SMA), 146.00.

 Resistance levels: 148.00, 149.00, 150.00.

USD/JPY Daily Chart