Today the Federal Reserve is expected to hike interest rates from 1.75% to 2.0% at the conclusion of its June 12-13 FOMC meeting, and announce the next step in its balance sheet normalization policy. The US economy has shown strong momentum with inflation at the Federal Reserve’s 2% target. If the FOMC upgrades the economic outlook there could be an upward shift in expectations for future rate hikes which would boost the Dollar. However, it is also possible that the Fed may calm fears about tighter monetary policy by indicating an early exit from its program to reduce the level of bonds held on its balance sheet. Traders should remain alert to elevated volatility around the announcement and press conference.
The USDJPY pair will be in focus today due to the FOMC and then again on Friday as the Bank of Japan has its monetary policy announcement. In the 4-hourly timeframe, USDJPY has broken above 110.40 and provided this level holds, the pair could continue to the upside with resistance at 111.00 and then 111.40. However, a reversal below 110.40 will find support at 110.00 and then the rising trend line near 109.70.
The Reserve Bank of Australia (RBA) is not expected to hike rates until mid-2019 and so the policy divergence with the U.S. Federal Reserve will impact the Aussie. On the daily chart, the AUDUSD is again trading below 0.7600. A break of this level could see the pair make further gains towards trend line and horizontal resistance at 0.7660. On the flip-side, if 0.7560 is broken, the pair will resume the longer term downtrend with supports at 0.7500 and then 0.7450.