- USD/JPI outlook is bullish after Powell spoke cautiously.
- Analysts expect further easing of price pressures from 3.4% to 3.1% in June.
- Japanese wholesale inflation rose in June.
The USD/JPI forecast is bullish as the dollar develops ahead of US inflation data. Meanwhile, the yen remained weak despite data showing a rise in Japanese wholesale inflation in June.
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On Tuesday and Wednesday, Powell spoke cautiously, saying the Fed needed more evidence that inflation would fall to its 2 percent target. As a result, the dollar received a boost, weighing on the yen. At the same time, the probability of a rate cut in September fell from 76% to 73%.
As long as the Fed delays rate cuts, the gap between Japan and the US of 5% will remain. Therefore, the yen is likely to continue to fall. However, the upcoming US inflation report could change this outlook. Analysts expect further easing of price pressures from 3.4% to 3.1% in June. That would bring consumer inflation closer to the Fed’s 2% target. Consequently, it would give policymakers more confidence to cut rates. Moreover, milder inflation would put pressure on the dollar, relieving the yen.
The yen can only strengthen when the gap between Japan and the US narrows. This can only happen with BoJ hikes and Fed rate cuts. However, both central banks are delaying these moves. The Bank of Japan is trying to shore up a vulnerable economy that could worsen with higher borrowing costs. On the other hand, the Fed is waiting for more evidence that inflation will reach 2%.
Elsewhere, Japan’s wholesale inflation rose in June as a weak yen pushed up the cost of imports, including raw materials. This increased the likelihood of a BoJ hike in July.
USD/JPI Key Events Today
- US Core CPI m/m
- US CPI m/m
- US CPI y/y
- US unemployment claims
USD/JPI Technical Forecast: Bears fail to hold price below 30-SMA
On the technical side, the price of USD/JPI is in a bullish movement, approaching the critical level of 162.01. Initially, the bears took control when the price broke below the 30-SMA following a bearish divergence of the RSI. However, the move failed to continue below the 160.50 support level.
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As a result, the bulls regained control. However, they need to make a higher high to confirm the continuation of the previous bullish trend. Otherwise, the price could start consolidating with support at 160.50 and resistance at 162.01.
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