- The yen strengthened on a higher likelihood of a December rate hike by the Bank of Japan.
- Core inflation rose more than expected in Tokyo.
- US inflation data is in line with expectations.
The weekly USD/JPI forecast supports further downside for the pair as the yen finds relief on increasing bets on a BoJ rate hike.
USD/JPI ups and downs
The USD/JPY pair had a bearish week as the yen strengthened on the increased likelihood of a December Bank of Japan rate hike. At the same time, the dollar weakened as the market’s focus shifted to the likelihood of a Fed rate cut in December.
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Data during the week revealed that core inflation in Tokyo rose more than expected. As a result, traders were giving higher odds that BoJ policymakers would raise rates by 25 basis points in December. At the same time, US inflation data was in line with expectations, firming bets on a rate cut in December.
Next week’s key events for USD/JPI
Next week, traders will focus on economic reports from the US, including manufacturing PMI and monthly employment data. The PMI report will show the level of business activity in the manufacturing sector.
Meanwhile, the employment report will show the state of the labor market. In the previous month, job growth slowed significantly to 12,000, prompting fears of a deterioration. Another bad month will solidify bets for a December rate cut.
USD/JPI Weekly Technical Forecast: Bears face hurdle at 150.02
From the technical side, USD/JPY the price reversed to the downside after finding solid resistance at the 156.06 level. Bears resurfaced at this resistance with a bearish candle that led to a breakout below the 22-SMA. At the same time, the RSI broke below the 50 level and entered bearish territory.
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However, the price must now start making lower highs and lows to confirm a new downtrend. At the moment, the bears are facing strong support from the 150.02 level and the 0.382 Fib level. A break below this support zone will allow USD/JPI to set its targets at lower support levels including 145.06 and 0.618 Fib.
Meanwhile, if the price breaks above the SMA again, it may revisit the resistance at 156.06. A break above would confirm a continuation of the previous bullish trend.
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