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Thursday – BOJ Kuroda Final Meeting

Friday – NFP, BOJ Kuroda Final Meeting

FX Midweek Outlook 9/3/2023

During his congressional testimony on Tuesday, Chair Jerome Powell stated that the Federal Reserve is expected to increase interest rates at a faster pace than previously anticipated, given the persistence of inflation. This represents a more aggressive stance compared to last month when the pace of hikes slowed down. If reports on jobs and prices show that rate hikes have had little effect on cooling the economy, the Fed may raise its benchmark lending rate by half a percentage point at the next meeting.

Following the announcement, USD gained strength against its peer, and let’s have a look at some of the major FX pairs.

EURUSD

EURUSD Daily

A giant bearish engulfing candle on the daily timeframe is definitely the most eye-catching thing. A drop of 130 pips on Wednesday pushed the pair closer to its 1.0510 support level. Interestingly, the pair barely moved yesterday and formed a doji pattern with investors staying on the sidelines waiting for the upcoming job numbers on Friday.

If the dollar’s strength persists, EURUSD may potentially face a breakout below the support level and continue to decline towards the next major support near 1.0350. Our preference remains bearish because a bounce off the immediate support is unlikely considering the selling pressure that was just built up.

USDJPY

Global investors are keeping a close eye on Governor Haruhiko Kuroda’s final meeting at the Bank of Japan, which is set to conclude on Friday. There is speculation that Kuroda might make a surprising announcement that could have a significant impact on financial markets worldwide. 

While most economists surveyed by Bloomberg predict that there will be no policy changes at the end of the two-day gathering, Goldman Sachs and BNP Paribas are among the few warning of the possibility that Kuroda may adjust or even terminate the central bank’s yield curve control program.

Market volatility will surge regardless. Where to for USDJPY?

USDJPY Daily

From a bigger picture point of view, USDJPY is trading steadily in a rising channel. Translated, this meant that the US dollar has been strengthening against the Yen for the past month. Taking the recent speech from Powell into account, there is a high chance that USDJPY could continue to push higher and break the 138.000 key resistance in the coming days. Nonetheless, the final appearance of BOJ Kuroda is still a wild card on the table. 

A break above the channel could open the way to further upside that is as high as 142.200. On the flip side, a break below the channel could lead to a plunge towards 134.500 support.

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