We’ve been seeing some mild dollar buying the last week or so as the market goes looking for a shift in sentiment from Janet Yellen and the Fed.

The jobs market is roaring, compared to where it was a year or so ago, and there signs that different sectors of the economy are gathering pace. There are still plenty of blips seen in the data though but that’s not dissuading the buyers from slowly gathering bucks. The question is whether the buyers are getting ahead of themselves before the FOMC announcement on Wednesday.

You can probably count on one hand the people expecting any change from the Fed. If anything the risk is that they increase the taper but I think that’s a slim risk.

The economy is slowly fixing itself but there’s no boom time coming anytime soon. To me that means the FOMC is going to keep a dovish/neutral tone at this meeting. They then have the usual six week break until the next meeting, so plenty of time to assess the economy further. There’s been nothing in the data that suggests that Yellen & Co need to change tack on policy and they can still point at plenty of risks to keep the party line.

For the medium to long term I like to play USD/JPY from the long side and I see no reason to change. At some point rate rises are coming and inflation is picking up. Short term I think that there an opportunity here to cash in on the dollars recent bullishness. I can see the buck edging up towards the announcement and I think that they will be disappointed when the announcement is made and we could see a knee jerk sell off.

We’ve a couple of days to go yet but the resistance areas in USD/JPY look strong enough to hold as the market will not want to get too extended. 102.00 is the first obvious target and this contains the 200 and 100 dma’s. Above there 102.20, 102.70/80 has provided ample resistance in the 2014 range and it’s pretty tough going all the way to 103.

USD/JPY Daily chart 28 07 2014

USD/JPY Daily chart 28 07 2014

I’m going to be looking to take in intraday short into the FOMC if we break 102. If we come up against those higher resistance levels then I’ll start scaling in. Timing and strength of the move up will play a big part as shorting too early may mean the price moves too far away to profit on a FOMC fall. I’ll be looking for 50-75 pips to the downside. I’ve got a core long from 101.10 so dependant on where we are on Wednesday I might cash some of that in and re-load on a drop or keep it. Chances are any fall won’t go that far anyway.

In some ways it’s a similar set up to the MPC announcement and minutes release where the bulls got themselves a little to excited. I don’t think dollar bulls are at quite that level but I feel there is some expectation in the market and that potentially gives us a chance to make some money out of them.