- Japan’s economy likely contracted less than expected in the March quarter.
- The dollar traded near an 8-week low on heightened expectations of a rate cut.
- Investors are eagerly awaiting the US monthly jobs report.
The USD/JPI outlook points south as the yen strengthens on the prospect of a smaller-than-expected contraction in the Japanese economy in Q1. Meanwhile, the dollar traded near an eight-week low as traders awaited the monthly US jobs report.
–Are you interested in learning more about tips for Forex traders? Check out our detailed guide-
A Reuters poll on Friday found that Japan’s economy likely shrank less than expected in the March quarter. Moreover, economists expect a recovery in the second quarter due to wage increases and tax cuts. However, the outlook for the economy remains clouded, given the weak yen and high import costs, which hurt consumption.
The Japanese government and the Bank of Japan are concerned about the continued weakness of the yen. Although the currency has recovered recently, it remains close to the 34-year low that triggered interventions in April and May.
Meanwhile, the dollar fell on Friday after poor economic reports boosted the odds of a Fed rate cut in September to 69%. Furthermore, investors expect at least two 25 basis point cuts this year.
However, this outlook could change with the upcoming non-farm payrolls report. Private payrolls were lower than expected. Therefore, there is a good chance that the NFP numbers will miss forecasts. This would strengthen the case for tapering in September and further weaken the dollar. However, if the numbers beat forecasts, the outlook for Fed tapering will become clouded.
Investors are also gearing up for policy meetings in Japan and the US next week. Both central banks are likely to keep rates on hold, maintaining a wide gap in interest rates.
USD/JPI key events today
- Average hourly earnings in the US m/m
- The change in US non-farm employment
- Unemployment rate in the US
USD/JPI Technical Outlook: Bears are preparing to confirm a reversal
On the technical side, the USD/JPI price is almost confirming a bullish to bearish reversal. The price is trading below the 30-SMA with the RSI below 50, showing solid bearish momentum. It recently broke below its bullish trendline and pulled back to retest it. At the same time, it retested the 30-SMA as resistance before reversing lower.
–Are you interested in learning more about forex brokers? Check out our detailed guide-
If the bears maintain control and the price drops, it signals the start of a new downtrend. Accordingly, USD/JPI is likely to revisit the 154.02 support level.
Do you want to trade Forex now? Invest in eToro!
68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing money.
