- Next week’s US inflation report will shape the outlook for a Fed rate cut.
- Tokyo has spent about $60 billion to try to prop up its weak currency.
- BoJ policymakers were all hawkish at the April meeting.
The USD/JPI forecast is leaning bullish as the dollar strengthens ahead of next week’s US inflation data. Markets believe the economy remains strong, which could mean another upbeat inflation report. Meanwhile, hawkish views from BoJ policymakers at their last meeting helped briefly support the yen.
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Market participants are preparing for the US inflation report, which will shape the outlook for a Fed rate cut. The latest report led to a significant rally in the dollar that weighed on the yen and worried Japanese authorities. Another report could bring the pair back to the $160.00 level and trigger another intervention. Last week, Tokyo spent about $60 billion to try to prop up its weak currency.
If inflation remains persistent, there’s a good chance investors will push back the timing of the Fed’s first rate cut. On the other hand, a surprise drop would be a big relief for the Fed, especially after the recent jobs report. That would solidify bets that the central bank will cut interest rates in September.
Elsewhere, minutes from the Bank of Japan’s last meeting in April revealed that policymakers were all hawkish. As a result, experts believe the next rate hike could come in June or July. While this boosted the yen, it was short-lived as it quickly resumed its decline against the dollar.
USD/JPI Key Events Today
- US unemployment claims
- US 30-year bond auction
USD/JPI Technical Forecast: Channel Break Confirms Bullish Reversal
On the technical side, the USD/JPI price has broken through its bearish channel and is fast approaching the key resistance level of 156.00. A breakout shows that the bulls have taken control. At the same time, the price is trading above the 30-SMA with the RSI above 50, supporting a new bullish bias.
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The bulls gained confidence when the price broke above the channel resistance. However, after such a strong rally, the price could stall at the key resistance of 156.00. This would allow it to pull back and retest the 30-SMA as support before going higher. Given the new bullish bias, the price could break above the 156.00 level to retest the key resistance level of 158.00.
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