Global Markets Brace for Key Interest Rate Decisions Amid USD/JPY Downtrend

This week’s high-impact economic events feature key interest rate decisions and economic indicators from major economies, including the UK, USA, New Zealand, Australia, Japan, and Canada. The USD/JPY currency pair is experiencing a downtrend with potential support and resistance levels highlighted. Fundamental analysis suggests market movements may be influenced by anticipated rate cuts from the Federal Reserve and potential policy changes by the Bank of Japan.

Wednesday 09:00 am (GMT+3) – UK: CPI y/y (GBP)

Wednesday 21:00 (GMT+3) – USA: Federal Funds Rate (USD)

Thursday 01:45 am (GMT+3) – New Zealand: GDP q/q (NZD)

Thursday 04:30 am (GMT+3) – Australia: Employment Change (AUD)

Thursday 14:00 (GMT+3) – UK: Official Bank Rate (GBP)

Thursday 15:30 (GMT+3) – USA: Unemployment Claims (USD)

Friday 02:30 am (GMT+3) – Japan: BOJ Policy Rate (JPY)

Friday 15:30 (GMT+3) – Canada: Retail Sales m/m (CAD)

Since reaching the 2024 high of 161.941 on July 3, USD/JPY has been in a sustained downtrend. A key technical pattern, known as a failure swing, emerged as the peak of 161.798 failed to surpass the previous high, followed by a drop below the 160.254 trough, confirming the bearish reversal. The formation of a “Death Cross” on July 26, where the 20-period EMA crossed below the 50-period EMA, further reinforced the downward momentum. This negative trend is also supported by the Momentum oscillator and Relative Strength Index (RSI), both of which are below their critical thresholds of 100 and 50, respectively. However, a closer look reveals a positive divergence between the Momentum oscillator and price action, suggesting the potential for an upside correction in the near term.

If bullish momentum prevails, traders are likely to focus on the following key resistance levels:

143.425: The first resistance level is identified at 143.425, representing the trough recorded on August 26.

147.199: The next target is 147.199, aligned with the peak formed on September 2.

151.931: A further resistance level is seen at 151.931, corresponding to the daily low from July 25.

161.941: Lastly, the key resistance at 161.941 reflects the highest exchange rate reached in 2024.

If bearish momentum persists, traders may focus on the following key support levels:

139.568: Initial support is located at 139.568, corresponding to the daily low observed on September 16.

137.369: The second support level is at 137.369, aligning with the 261.8% Fibonacci Extension between the swing low of 143.425 and the swing high of 147.199.

135.911: Additional support is identified at 135.911, representing the weekly S3 level based on standard Pivot Points.

131.313: The final downside target is at 131.313, reflecting the 461.8% Fibonacci Extension between the swing low of 143.425 and the swing high of 147.199.

According to a CNBC Fed Survey, 84% of respondents anticipate a 25 basis point rate cut by the Federal Reserve today, reflecting expectations of a soft landing for the economy. While futures markets indicate a higher likelihood of a 50 basis point reduction, survey participants generally prefer a more gradual approach. The probability of a soft landing is estimated at 53%, with a 36% chance of recession. Equity valuations are deemed reasonable under a soft-landing scenario; however, 97% of respondents believe they are overvalued in the event of a recession.

On the other hand, the Bank of Japan is expected to maintain its benchmark interest rate at 0.25% this week, though the consensus among economists suggests a potential rate hike by December. Governor Kazuo Ueda faces the delicate task of signaling future rate increases without triggering market volatility, particularly in light of previous criticism regarding the BOJ’s communication surrounding the unexpected rate hike in July. The central bank is focused on preparing markets for policy normalization while closely monitoring the potential implications of an anticipated rate cut by the Federal Reserve.

In conclusion, this week’s high-impact economic events are set to have a significant impact on global financial markets. The USD/JPY currency pair continues its downtrend, though the Momentum oscillator and price indicate the potential for an upside correction. Key fundamental drivers, including expected interest rate decisions from the Federal Reserve and Bank of Japan, will likely play a central role in market movements. Traders should stay alert and adjust their strategies accordingly as these developments unfold.