- The dollar rose on Tuesday after Fed policymakers maintained a cautious tone.
- Lisa Cook’s Fed rate cut would depend on incoming data.
- The BoJ is under heavy pressure to raise rates due to the weakness of the yen.
The USD/JPI forecast points to the north as the dollar’s rise puts the yen at the $160 level that triggered BoJ intervention in April. Consequently, there is a lot of caution in the market as investors fear another intervention.
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The dollar rose on Tuesday after Fed policymakers remained cautious and failed to provide clear guidance on the central bank’s rate cut prospects. Lisa Cook from the Fed noted that the central bank is on track to cut rates, but that everything will depend on incoming data. It therefore failed to provide a clear timing for the first rate cut.
Policymakers remain hesitant to adopt a dovish tone pending more data. This is to avoid the same mistake they made last year. Although inflation started a downward trend, it reversed and they had to completely change their outlook.
The next report that could provide more evidence of the state of inflation is the PCE price index. Forecasts point to further easing, which would support Fed rate cut expectations. Such an outcome would further weigh on the yen.
Meanwhile, Bank of Japan policymakers gave hawkish signals last week, raising the possibility of a rate hike in July. The central bank is under heavy pressure to raise rates due to the weakness of the yen. A weak currency increases the cost of imports which increases inflation. The increase in July would have a big impact as it would coincide with plans to taper bond purchases.
USD/JPI Key Events Today
USD/JPI Technical Forecast: Bulls show exhaustion at 160.00 resistance
On the technical side, the price of USD/JPI continued its rise above the 1,618 Fib extension level. Moreover, the price remained above the 30-SMA, showing that the bulls are in the lead. However, the RSI has made a bearish divergence that could lead to a reversal.
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The divergence indicates weakening bullish momentum as the price trades near the key resistance level of 160.00. Therefore, there may be a pullback to retest the 30-SMA support. A deeper pullback would retest the 157.75 support level. However, if the bulls regain momentum, the price could break the 160.00 level and make a new high.
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