- U.S. jobless claims data showed a bigger-than-expected drop on Thursday.
- Investors expect the Fed to cut borrowing costs by 100 basis points this year.
- Economists expect US inflation to remain steady at 3.0% in July.
The USD/JPI forecast is bullish as the dollar continues to rally after last week’s stronger-than-expected employment numbers. Meanwhile, the yen remained vulnerable amid uncertainty over a near-term rate hike by the Bank of Japan.
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The dollar strengthened as expectations of a Fed rate cut eased. The change comes after jobless claims data showed a bigger-than-expected drop on Thursday. The US labor market is the reason for the recent market volatility. The latest monthly report raised fears that the economy is experiencing a sharp slowdown. As a result, markets have increased the odds of a 50 basis point cut in September.
However, as last week ended, fears of a recession eased as jobless claims data showed continued strength in the sector. Still, investors expect the Fed to cut borrowing costs by 100 basis points this year. At the same time, policymakers acknowledged recent signs of weakness by taking a dovish stance.
This week the focus will be on the US Consumer Price Index report. Economists expect inflation to remain stable at 3.0% in July. Meanwhile, the monthly rate could rise by 0.2%. If the numbers meet expectations, rate cut bets will remain intact. On the other hand, lower or higher numbers can cause high volatility.
Meanwhile, the yen fell on Monday after comments from policymakers last week reduced the likelihood of a near-term BoJ hike. A slower-than-expected hiking cycle could hurt the yen by keeping the US-Japan rate gap wide.
USD/JPI Key Events Today
It will be a slow start to the week as investors await US inflation data on Tuesday and Wednesday.
USD/JPI Technical Forecast: Bulls lack enthusiasm above 30-SMA
On the technical side, USD/JPI is trading above the 30-SMA after a recent reversal. At the same time, the RSI is trading above 50, supporting bullish momentum. The bulls took control at the key level of 142.56. However, they have yet to break above the SMA.
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Price action shows small-bodied candles, a sign of weak enthusiasm. Moreover, the price remains close to the SMA in a shallow movement. If the bulls regain momentum, USD/JPI will retest the key 150.03 level; otherwise, bears will trigger a drop in support at 142.56.
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