USD/JPY Slides Towards 110.00 Handle Following Fed Minutes

USD/JPY fell sharply lower in North American trading after several failed attempts at 110.91 resistance. The Federal Reserve meeting minutes triggered a broadly weaker dollar which added to losses for the currency pair. The decline has fallen slightly short of testing the psychological 110.00 handle and a consolidation has been taken place near the level.

The Federal Reserve minutes revealed somewhat of a division in the inflation outlook among members, something that the earlier released rate statement did not show.

On balance, policymakers have slightly revised down their forecasts for inflation for the remainder of the year but continue to expect it reach close to the objective in 2018 and at 2 percent in 2019.

Some members expressed concern over the string of weak inflation data as of late, pointing to downside risks such as the possibility of persistently low inflation readings for longer than expected.

The Federal Reserve previously stated that transitory factors have impacted inflation and did not move away from this stance. Policymakers stated that risks to the inflation outlook were balanced as there remains an upside risk to inflation in an economy that is projected to run above its longer-run potential.

The earlier released statement indicated that the Fed will start balance sheet normalization soon. The minutes revealed that some members had wanted to make the announcement at the current meeting while the majority felt it prudent to wait until an upcoming meeting. The Fed expects that balance sheet tightening will not have a major impact on the financial markets as the intention to tighten has been well communicated in advance.

Ahead of the meeting minutes, US building permits were reported at an annualized 1.22 million in July which was short of an expected 1.25 million. The data release did not have a sustained impact on the exchange rate.

The 110.91 level has held USD/JPY lower on several attempts this month and several attempts earlier today. The pair dropped lower from it ahead of the meeting minutes and extended losses following it.

Near-term support remains at 110.00 with some further support at 109.68 which is currently near the upper line of a declining trend channel that was breached yesterday.

The two-day rally in USD/JPY earlier this week had completely erased losses from last week. Today’s drop has wiped out about 40% of the week’s gain. The pair continues to carry a bullish directional bias while above the previously broken declining trend channel.

USD/JPY 4-Hour Chart

USDJPY 4H Aug 15 1

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.