Market In Risk-Off Mode Despite Less Dovish FOMC

US dollar and Treasuries yield fell after a less dovish FOMC as the market may be doubting Fed’s ability to accurately predict future outlook. Short USD/JPY?

Fed held rates unchanged as widely expected this morning and its policy statement showed that they might continue to hold throughout 2020.

Instead of rising as what the market expected, dollar index and Treasuries yield fell 0.3% and 5bps respectively.

This may be due to Fed’s credibility being challenged after Fed provided an upbeat outlook on the US economy in December 2018 but was proved wrong.

This led the market to believe that Fed could be wrong this time around as well.

Having said that, the risk is still on the downside as trade tariffs implemented by the US on China, which will be announced on 15 December, is still uncertain.

We believe that USD/JPY may be pressured to move lower until trade tariffs are cleared.

USD/JPY is currently moving higher but if we see a rejection at the current price, we could see short sellers coming in to push price lower towards 108.20.