Yellen puts the icing on the cake for a March hike
One of the oldest rules in trading is "don't fight a central bank". Reading about Yellen on Friday and, in her whole tenure as Fed head, she's given no greater clues on monetary policy changes than that one.
What might have shocked traders is the reaction in the dollar, falling over 100 pips since that event.
Rate moves are always traded by expectation, and not very often on the actual announcement (unless its a surprise move). We had already seen the dollar run higher on prior Yellen comments, and alongside more Trump expectation, as we moved from the 111 area last week. This move in the dollar looked like pure profit taking of that expectation of a hike. The 300 odd pips move from 111 is probably about right for a nailed on hike, so the pull back is a perfect signal that it's fully priced in.
What's likely to happen when the Fed hikes is a kneejerk move higher of something like 50-100 pips max followed by more profit taking. The only caveat is if the Fed is now willing to be super hawkish on another hike.
If the hike is all but priced, that might leave the playing field open to some of the other forex business that happens day to day, including the Japanese repatriation moves. Buyers are unlikely to let USDJPY stray too far to the downside so if we see increasing selling pressure coming in higher up, we could be in for a period of consolidation. The tech offers a good range for that consolidation to play in.
USDJPY daily chart
Both the 55 & 100 dma's look good to mark top and bottom, and the 111.90-111.60 area is looking very strong as support, and up top we still have a lot of exporter offers from 115.00. Ichimoku cloud watchers also have an eye on the top up around 114.80.
On the four hourly chart, we've got a good looking confluence of the moving averages to act as intraday support.
USDJPY H4 chart
That's quite a tight bundle of support around 113.20/40.
Playing the range looks to be the way forward now and grabbing a decent dip ahead of the Fed might be the least risky play between now and then, with a view of getting out over/just after the hike. Then we'll have to see what the lay of the land looks like before deciding where the pair goes next.
Data wise, the reality is that it's going to have to take something really catastrophic to derail a March hike, and although the chances of that are remote, never rule anything out, that's where the biggest risk lies now. If you going to run longs into the Fed it would be wise to think about a "disaster" stop just in case. If the Fed don't hike, we'll could be back at 111 or worse in a flash.