- The yen hit a fresh 38-year low and sparked concerns for an intervention.
- A pick-up in Tokyo inflation boosted the chances of a BoJ hike in July.
- The US core PCE index was softer, confirming the recent decline in price pressures.
The weekly USD/JPI forecast is bullish as the interest rate differential between Japan and the US affects the yen.
USD/JPI ups and downs
USD/JPI had a bullish week as the yen hit a new 38-year low and raised concerns about intervention. The yen’s decline last week came as investors focused on the gap in rates between the US and Japan. Because of this, there was little attention paid to economic data, resulting in many warnings from the Japanese authorities.
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The data showed an increase in inflation in Tokyo, raising the chances of a BoJ hike in July. Meanwhile, in the US, the core PCE index turned softer, confirming the recent decline in price pressures. Accordingly, bets on a Fed tapering in September have increased. However, none of these reports could stop the yen from falling.
Next week’s key events for USD/JPI
Next week, investors will focus on US data, such as non-farm payrolls and manufacturing PMI. They will also pay attention to Powell’s speech and FOMC minutes for clues about the Fed’s outlook.
At the Fed’s last meeting, policymakers took a somewhat hawkish tone, forecasting just one rate cut this year. However, traders maintained a more dovish outlook for two cuts this year due to softer inflation. So they will be paying close attention to Powell’s speech to see if his tone changes.
Meanwhile, the jobs report will shape expectations for a rate cut. The higher-than-expected number would dampen expectations for a rate cut. On the other hand, a smaller-than-expected amount would increase bets for the first cut in September.
USD/JPI Weekly Forecast: Price breaks through 160.00 resistance to set new high
On the technical side, the USD/JPI price recently broke above the key resistance level of 160.00 to make a new bullish high. The price has been consistently rising with higher lows and highs, indicating a solid uptrend. Moreover, it mostly remained above the 22-SMA with RSI above 50, supporting solid bullish momentum.
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However, with the recent new high, the bulls have weakened. The RSI made a bearish divergence with the price, a sign of exhaustion in the bullish move. If this divergence plays out, the price could revisit the support trendline before breaking below or rising higher.
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