- The USD/JPI bullish trend continued at a slower pace.
- Market participants cut bets on a November Fed rate cut of 50 basis points.
- Economists expect inflation to decrease from 2.5% to 2.3%.
The USD/JPI forecast shows dark clouds gathering over the recent bullish trend as market participants await the all-important US CPI report. Still, after bolstering expectations of a lower Fed rate cut, the dollar hovered near a 10-week high against the yen.
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USD/JPI’s bullish trend continued at a slower pace ahead of key US inflation data. Initially, the strong rally followed data showing a resilient labor market. The US non-farm payrolls report showed an unexpected jump in job growth in September. At the same time, unemployment decreased. As a result, market participants trimmed bets on a November Fed rate cut of 50 basis points.
Before the jobs report, Powell changed his tone to a slightly hawkish one. He proposed two more quarter-point rate cuts in 2024. Before then, however, policymakers were rather dovish, leading to a massive rate cut in September. As a result, the minutes of the FOMC meeting showed agreement with a super-major rate cut. However, it was out of date as it came well before the blockbuster jobs report.
Currently, market participants estimate an 85% chance of a rate cut of 25 basis points in November. However, this outlook could change further with the upcoming US CPI report. Economists expect inflation to decrease from 2.5% to 2.3%. Meanwhile, the monthly figure could rise 0.1% after a 0.2% increase in August. The outlook for a Fed rate cut could change significantly if inflation rises well above estimates. On the other hand, easing price pressures will support another rate cut in November.
USD/JPI Key Events Today
- USA core CPI m/m
- US CPI m/m
- US CPI y/y
- US unemployment claims
USD/JPI Technical Forecast: RSI signals fading bullish enthusiasm
On the technical side, the price of USD/JPI rose to a new high. It is trading well above the 30-SMA with RSI above 50, supporting the bullish bias. However, the price action has moved from the massive green candles to those in the malls. This could indicate a weakening of the bulls’ strength.
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At the same time, the RSI made a bearish divergence with price, showing fading momentum. Therefore, the bears may be poised to take over. If the price breaks below its bullish trend line, it could drop to the 30-SMA or lower. Otherwise, the bulls could continue to make higher highs.
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