- The dollar fell last week after the US released consumer inflation data for April.
- The Fed’s Thomas Barkin warned that inflation is still not where it should be.
- The Japanese economy fell more than expected in Q1.
The USD/JPI outlook looks bullish, with the dollar steady as Fed policymakers take a cautious stance despite the recent decline in inflation. Meanwhile, the yen remained vulnerable after last week’s data revealed weak economic growth in Japan.
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The dollar fell last week after the US released consumer inflation data for April. Significantly, the numbers were down, raising expectations that the Fed will cut rates twice this year. It also boosted market confidence that last year’s downtrend is still intact. However, when policymakers spoke after the report, they maintained a cautious tone, with Thomas Barkin warning that inflation was still not where it should be.
Meanwhile, the yen weakened after data on Thursday showed the Japanese economy shrank more than expected in Q1. As a result, the Bank of Japan faces a challenge as it plans to raise interest rates. A weak economy is more susceptible to high interest rates. Therefore, the central bank may be reluctant to increase, especially if this trend continues.
A weak yen has increased the cost of living in the country, which has put pressure on consumer spending. Notably, the yen has lost 10% of its value against the dollar this year due to the interest rate gap between Japan and the US. Unfortunately, the yen is likely to remain weak if this gap persists.
USD/JPI Key Events Today
Investors are not expecting high-impact economic reports from Japan or the US. As a result, the pair could consolidate.
USD/JPI Technical Forecast: Bulls struggle for control at 30-SMA
On the technical side, the USD/JPI price is trading in a solid resistance zone after finding support at the 154.01 level. After a strong bounce, the price has paused and is cutting through the 30-SMA in a narrow range. The break is below the 0.5 Fib retracement, a strong resistance level.
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Meanwhile, the RSI also rose above 50, indicating stronger bullish momentum. The bullish bias will strengthen if the bulls break away from the 30-SMA and break above the 0.5 Fib level. Furthermore, the price is likely to retest the 158.00 resistance level. However, if resistance remains firm, it will fall to 154.01.
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