The USDJPY is trading in a tight range as traders await Fed Chair Powell’s speech at the Jackson Hole Symposium. The dollar opened the week strong, fueled by expectations of a hawkish Powell, which has created some market tension. Recent data, like improving Jobless Claims and rising inflation, indicates a low chance of a rate cut in September. The market expects around 54 bps of easing by the end of the year.

Japanese Yen Considerations

The yen has gained value due to expectations of a dovish Fed. It could rise further if US data weakens or if Japanese inflation increases, which might lead to higher interest rates. Possible additional fiscal support in Japan could also boost inflation. On the daily chart, the USDJPY is consolidating below 148.50, with this level acting as resistance, while support is around 145.50. If a breakout occurs, buyers may push for a rise toward 151.00. The 4-hour chart shows volatility, with prices fluctuating between resistance at 148.50 and a low at 145.86. All eyes are on Powell’s speech as traders wait patiently. The 1-hour chart reveals a downward trendline, suggesting bearish momentum, with sellers aiming for 145.86 and buyers looking to break above the trendline to challenge resistance at 148.50. Upcoming events include speeches, PMIs, jobless claims, Japanese CPI, and Powell’s address. As the week nears its end, the market stays tense in anticipation of Powell’s speech. The USD/JPY pair is caught in a narrow range, reflecting uncertainty about a hawkish or dovish outcome. This kind of consolidation often happens before major central bank announcements. Powell has little reason to hint at a rate cut soon, especially with the recent data. Core PCE inflation is still high at 2.8%, well above the Fed’s target, and last week’s jobless claims remained low at 212,000, indicating a strong labor market. These figures suggest the Fed will be patient before starting to cut rates.

Market Strategy and Outlook

Currently, the market is expecting about 54 basis points of cuts by the end of the year, which seems overly optimistic. In his 2023 Jackson Hole speech, Powell emphasized tackling inflation, setting a precedent for a hawkish stance. A similar message this Friday could cause the market to push expectations for rate cuts further into the future. For the yen to appreciate significantly, US economic data would likely need to deteriorate sharply. The latest Tokyo CPI rose to 2.5%, but it’s not enough to prompt a more aggressive Bank of Japan. At this stage, the dollar’s movement largely dictates the pair’s direction. With the potential for a significant price shift after Powell’s speech, buying volatility appears to be a smart strategy for derivative traders. A long strangle, which involves purchasing both an out-of-the-money call and put, is worth considering for capitalizing on a large breakout. This approach enables traders to profit from sharp moves without predicting the exact direction. We are closely monitoring the 148.50 level as key resistance and trendline support around 145.50. A break through either of these boundaries after the speech would indicate the next big move for the pair. Setting strike prices for an options strategy outside the current range could position traders well for the anticipated volatility increase. Create your live VT Markets account and start trading now.

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