- The dollar has rallied since the start of the year on falling expectations of a Fed rate cut.
- The US economy grew at a rate of 1.4% in the first quarter.
- Tokyo’s core CPI rose 2.1% in June after last month’s 1.9% increase.
USD/JPI price analysis is bullish as the dollar trades at a 38-year high against the yen ahead of US inflation data. Investors fear possible intervention as the yen trades at its weakest level since 1986.
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The dollar has rallied since the start of the year on falling expectations of a Fed rate cut. Currently, it is heading for its second quarter of growth, and the Fed predicts just one rate cut this year. Meanwhile, investors expect at least two. However, the prospects will largely depend on the incoming data.
Namely, data from Thursday showed that the US economy grew at a rate of 1.4% in the first quarter, which is an increase compared to the previous growth of 1.3%. At the same time, claims for the unemployed fell from 239 thousand to 233 thousand last week, which indicates the strength of the labor market. Markets now await the PCE report, which could show inflation easing to 2.6% in May. Lower inflation would increase bets on a rate cut and weaken the dollar. This would bring relief to the yen after its recent decline.
Meanwhile, core inflation in Japan’s capital, Tokyo, rose in June as a weak yen pushed up the cost of imports. Core CPI rose 2.1% after last month’s 1.9% increase.
Moreover, the data revealed a 2.8% increase in Japanese factory output in May. This was a more significant number than the forecast of 2.0%. These reports increased the chances that the Bank of Japan will cut rates in July. However, this was not enough to stop the yen from falling.
USD/JPI Key Events
USD/JPI Technical Price Analysis: Bulls eyeing 162.01 after breakout of 160.00 resistance
On the technical side, the USD/JPI price is in a solid bullish trend that recently broke above the critical resistance level of 160.00. Moreover, the price is sitting above the 30-SMA and the RSI is moving in and out of the overbought region, showing solid bullish momentum.
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Moreover, the uptrend makes such short pullbacks, a sign that the bulls are much stronger than the bears. Currently, the price is paused and retreating. It may retest the 30-SMA support before continuing higher. The next major resistance is at the 16.01 level.
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