TD Research discusses USD/JPY trading strategy into today's FOMC meeting and prefers to sell recent rallies into 113.
"The takeaway from the Fed will boil down to a few key signals. First, the signal on the neutral is critical since it signals a possible endgame over the next few years. We think the median longer-term dots drop to 2.75%. Second is whether the Fed still feels the policy stance is accommodative. Any modification to that language would be a dovish surprise," TD argues.
"That means there is plenty of room to fade any knee-jerk reaction, but on balance, we think the USD ends the day lower. Bar JPY, the USD is running a negative correlation to 2y spreads, suggesting something has caught its attention
For USDJPY, the HFFV signal is shifting on the "fade" radar screen as fair value sits around 111.20..Against our Fed baseline, that keeps us biased towards selling into the rallies around 113," TD adds.