Dollar/yen traded in a narrow range and suffered from political issues in both Japan and the US as well as rising tensions towards the Fed decision. After this consolidation, is the pair ready for another downfall? The Fed is clearly in the limelight, but the Moritomo scandal in Japan, Mueller’s investigation and trade continue to play a role.

USD/JPY fundamental movers

Japan’s Moritomo scandal implicates not only low-level finance ministry officials but also the Finance Minister Taro Aso. He will not attend the G-20 meeting in Buenos Aires. Later in the week, we also learned that PM Shinzo Abe’s name was removed from the documents that have been doctored. This weighed on Japanese stocks and sent the yen higher.

In the US, the firing of Secretary of State Rex Tillerson with a tweet added to the sense of turmoil in the White House. Trump’s team is looking closer to him, closer to an anti-trade agenda and further away from the globalist view. This has also hurt stocks and pushed the pair lower.

US data was mixed, with inflation coming in exactly as expected at 1.8% y/y on the core and not going anywhere fast in general. Retail sales disappointed to the downside while consumer confidence beat expectations.

First Fed decision by Powell, more politics

The calendar is quite busy with the Federal Reserve taking center stage on Wednesday. Jerome Powell is widely expected to raise the interest rate in his first meeting and markets ask: what’s next? The Fed’s current dot-plot points to three hikes in 2018 while Powell has previously hinted at four. The tone of the statement will be watched in addition to the dot-plot and Powell will also have his say in his first press conference. His tone may differ from the one in the dot-plot or the statement. It may become very interesting for the US Dollar.

In addition, housing figures and durable goods orders will have an impact on markets.

USD/JPY Technical Analysis

112.90 served as support in December and is a pivotal line in the range. 112.20 used to be important in the past.

It is closely followed by 111.70, which provided support back in October. The round level of 111 worked as a cushion to the pair in November.

Looking down, 110.70 was a separator of ranges in June and remains important. The round number of 110 serves as a psychological level.

109 was a pivotal line within the range. 108.30 was the low seen in late January. Even lower, we find 107.30 was the low in September and now turns into resistance.

106.50 was a resistance line in mid-February. The 105.25 low is the next line to watch, serving as a low point around the same time.

If the pair falls even lower, the round number of 105 will come into play, followed by 103.30.

USD/JPY Daily Chart

USD/JPY Sentiment

I remain bearish on USD/JPY.

While the US Dollar may find room to rise against other currencies, it may have a hard time against the yen given the political turmoil and also the safe-haven nature of the Japanese currency. In addition, a weakened Japanese government may not be able to talk down the yen.