- The US economy grew at an annual rate of 1.3% in Q1 compared to 1.6%.
- Investors are preparing for the US core PCE price index.
- Core consumer inflation increased in Tokyo.
The USD/PII outlook shows a slight dip as the greenback declines after weaker-than-expected GDP data and ahead of inflation data. Meanwhile, inflation data in Japan showed a mixed picture, complicating the outlook for a rate cut by the Bank of Japan.
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Data from Thursday revealed that the US economy grew at an annual rate of 1.3% in Q1, up from 1.6%. Weaker-than-expected economic growth is showing the impact of high borrowing costs, which is putting pressure on the Fed to start cutting interest rates. This has renewed hopes for a Fed rate cut this year, with the likelihood of it increasing from 51% to 55% in September.
Investors are gearing up for this week’s most important report: the core PCE price index. This index will provide a clear picture of core US inflation and guide traders on whether and when the Fed will cut interest rates this year. Economists expect that figure to remain stable at 0.3%. Another upbeat inflation report would see USD/PII rise, which would renew fears of intervention.
Elsewhere, data from Japan showed an increase in core consumer inflation in Tokyo. However, non-fuel figures eased, raising uncertainty about the Bank of Japan’s rate hike cycle. At the same time, there was an unexpected drop in factory output in April, underscoring Japan’s weak economic recovery. A fragile economy complicates the BoJ’s plans to raise interest rates. Therefore, the interest rate differential between the US and Japan could remain wide, weakening the yen.
USD/JPI Key Events Today
- US core price index PCE m/m
USD/JPI technical outlook: Decline stops at 156.50
On the technical side, the USD/JPI price has broken below the 30-SMA, indicating a change in sentiment from bullish to bearish. However, the decline was stopped at the support level of 156.50. Moreover, on a larger scale, the price remains in an uptrend, making larger highs and lows. Consequently, it could bounce from 156.50 to retest the 158.00 level.
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Even if it breaks below 156.50, the USD/JPY price would find solid support at the bullish trend line. Only a break below this trend line would signal a trend reversal. Otherwise, the bulls are likely to remain in check.
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