The U.S. dollar retreated against its major trading partners following FOMC rate decision that saw the target rate range maintained at 0.50-0.75%. The Fed also reiterated that monetary policy remains accommodative and that inflation will rise to 2.0%. The vote was unanimous at 10-0.
The Committee seeks to foster maximum employment and price stability. The Committee expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will rise to 2% over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.
Following the rate decision, Fed Fund futures highlight that the market is only looking for two rounds of tightening and that chances of March rate hike ticked slightly higher to 32%.
The USD/JPY daily chart highlights the key consolidation that has taken place since the end of 2016. Initial resistance remains the 114 level and support lies at the 112 level. If price remains weak, key support may come from the 110.00 to 110.50 range. It is around that area that price could form a bullish Gartley pattern. Point D is targeted with the 50.0% Fibonacci retracement level of the X to A leg and the 161.8% Fibonacci expansion level of the B to C leg. If valid, we could see a rebound towards the 50-day SMA, which currently trades around the 115.21 level. If we do not see another leg lower and bullishness returns the next key resistance level will be the 119 level.
The trade: Buy USD/JPY 110.50, with a stop loss at 109.50 and take profit at 113.50. The risk/reward ratio is 1:3