It has been a conflicted open to Fed week for the U.S. dollar (USD). With only a few hours left in the Monday forex session, the EUR/USD (+0.11%), USD/CHF (+0.18%), USD/CAD (-0.07%), and USD/JPY (+0.32%) are producing mixed returns. On the commodity front, WTI crude oil continues to rally above $71.00 and gold is off nearly 1.0%. For the moment, this week’s FOMC meeting has asset values all over the board.

With a little over 48 hours until the June Fed announcements, traders are proceeding with caution. This isn’t all that surprising, as the markets aren’t expecting much from this week’s meeting. The current QE unlimited policy is highly likely to remain in place, with $120 billion in monthly debt purchases and 0.0%-0.25% interest rates continuing into the foreseeable future. 

Despite the muted expectations, there has been some movement in the CME FedWatch Index. The chance of a Wednesday ¼ point rate hike now stands at 7%, up from 4% on Friday. While the real odds of a rate hike are minute, the uptick does suggest that investors are preparing for the Fed to formally address rising inflation. 

One of the key elements of this week’s Fed meeting will be their statement on the current levels of bond buying. At some point, the Fed will have to taper the $120 billion in monthly purchases of U.S. Treasuries and corporate debt. If Jerome Powell alludes to a forthcoming tapering of open market activities, then we may be in for volatility across the equity, currency, and commodity markets.

USD/JPY Rises To Kick Off Fed Week

On today’s forex, the USD/JPY is one of the strong spots for the Greenback. Rates are up by more than 0.30% and are challenging the 110.00 handle.

Here are a few levels to watch for the near future:

• Resistance(1): Daily Double-Top, 110.31-32
• Resistance(2): Yearly High, 110.96

Bottom Line: No thanks to Fed QE, the USD/JPY remains in long-term bullish territory. If bidders can successfully take out 110.00, then tests of the Daily Double-Top and yearly high may be in order.

Until elected, I’ll be looking to sell the Daily Double-Top pattern from 110.24. With an initial stop loss at 110.55, this trade produces 31 pips on a standard 1:1 risk vs reward ratio.