Once the FOMC meeting and press conference are both out of the way, the near-term direction for the dollar should become clearer. For those who prefer to focus on something else, crude oil or a non-dollar FX pair would be a good place to start.
In fact, there will be key data coming out of New Zealand a few hours after the FOMC, namely GDP, while the Bank of Japan will be making its own interest rate decision overnight. So, the New Zealand dollar and Japanese yen could be the alternative currencies to find trading opportunities on.
The New Zealand economy is expected to have expanded by 0.8% in the second quarter versus 0.5% in Q1. If confirmed, or better, then the NZD could extend its rebound, while a weaker-than-expected number could derail the rally.
As far as the BoJ is concerned, well no change in policy is expected to be announced, although the yen could move sharply nonetheless in the event the Japanese central bank turns out to be surprisingly more hawkish or surprisingly more dovish than expected. Ahead of the BoJ rate decision, the yen has been among the weakest of major currencies out there, owing to a “risk-on” trading environment and expectations that the BoJ will remain one of the most dovish central banks out there.
Consequently, the New Zealand dollar/Japanese yen (NZD/JPY) currency pair was up for the fourth consecutive day, at the time of this writing. It has broken in the process key resistance levels at 80.35 and now 81.70/80. These levels could be the new supports to watch going forward. The NZD/JPY was testing another short-term potential resistance level at 82.35 when this report was written. So there was a possibility we could see a small pullback here. But the key resistance is further higher, around the 83.40-83.90 area. Any sustainable break above this zone would be considered very bullish. In this potential scenario, the NZD/JPY could then rise towards the bullish objectives shown on the chart, starting at 84.70/85 – resistance and 61.8% Fibonacci retracement level.