The FOMC has decided to keep rates unchanged in a move that did not surprise the markets. However, attention has now shifted to the press conference by US Fed Chair and Chairman of the Federal Open Market Committee (FOMC) Jerome Powell. Early comments are sending the USDJPY higher as he has hinted at the FOMC’s dissatisfaction with current inflation levels, which are below 2%.
“Change in inflation language in policy statement reflects the need for clear signal Fed does not want inflation persistently below 2%.”
“Fed is not satisfied with inflation running below 2%, and it is not a ceiling.”
“Fed will raise the minimum bid rate at some point.”
FOMC Chair Powell has also indicated that there will probably be a change to the size of its repo market operations. However, he has clarified the situation by saying that the FOMC is still “several months away from that”.
Other excerpts from Powell’s speech are as follows:
“coronavirus likely to disrupt activity in China, maybe world”.
“very uncertain about how far virus will spread”.
“Fed’s carefully monitoring situation around coronavirus”.
“sees grounds for cautious optimism on the global economy”.
“There is no current urgency to make a decision on standing repo facility”.
As I predicted yesterday, this has been one of the quietest market responses to an FOMC decision and press conference, largely because the markets were not expecting any surprises and the two news events did not deliver any.
With such muted market response, focus shifts to the USDJPY, which is trading at the lower end of the rising channel. A break below the channel could target the first support target at 108.423.
On the flip side, a bounce off the lower channel border allows the USDJPY push upwards to target the upper channel border, but will have to beat 109.30 and 109.70 along the way to achieve this.