The USD/JPY pair is still in range trading mode
After a full day has passes we are faced with the toughest decision which the Federal Reserve has to do in order to communicate its next steps to the market - how to adjust its policy statement on Wednesday. There are differing opinions and this is likely to be the most unexpected Fed meeting outcome to take place this year.
The direction of the USD/JPY pair hinges on the outcome from the Fed meeting and we would be cautious when trading today. There are a number of possible scenarios and we will touch on all of them, but have in mind that this Wednesday will be particularly difficult to predict.
We are seeing a base forming in the USD/JPY pair around 121.10. In order for a move to happen we would need to see a close below this level in order to buy daily puts on the pair and look forward to a drop below 121.00. That said, this will only occur if the Federal Reserve statement will be dovish.
In light of recent oil price drops and producer and consumer price inflation numbers, coupled with a period of weak retail sales figures, the Federal Reserve could indeed delay its rate hikes commitment. Janet Yellen will be speaking after the statement to clarify any issues.
What we are expecting from her is to communicate to the market what are the intentions of the Federal Reserve going forward. If the U.S. central bank drops one single word from its statement this can be another leg higher for the U.S. dollar, this word is "considerable".
The U.S. Fed has repeatedly said that it will keep rates at current levels for "considerable" time. IF they substitute the word with "some", this means that the rate hike is getting closer and the U.S. dollar will rally, however if that doesn't prove to be the case, the USD/JPY could drop hard.
In the alternative scenario, if we don't see a drop below 121.10 before the meeting's results are announced, binary options traders should be looking for an hourly close above 121.45 in order to buy daily calls on the pair for the expiry at 21:00 GMT.