Investors are closely monitoring the comments from Fed speakers regarding inflation, economic outlook, and interest rates. Last week, the FOMC Meeting Minutes, labor market data, and the US Services PMI shifted investor expectations of a September Fed rate cut. Despite a slight relief in Michigan Inflation Expectations rising from 3.2% to 3.3% in May, which is above the 2% target, the chances of the Fed leaving interest rates unchanged increased from 35.2% to 50.2%.
The upcoming US Personal Income and Outlays Report on Friday could potentially change the narrative again. Softer inflation numbers and a decline in personal income/spending might rekindle investor bets on a September Fed rate cut. This will have an influence on the near-term trends for the USD/JPY.
Central Bank Chatter and Inflation Numbers
The movement of the USD/JPY will heavily depend on central bank chatter and inflation figures from Japan and the United States. With the dwindling prospects of a Fed rate cut in September, US inflation data becomes crucial in determining the Fed rate path and subsequently the direction of the USD/JPY exchange rate.
The USD/JPY currency pair has been maintaining a bullish stance, trading comfortably above the 50-day and 200-day Exponential Moving Averages (EMAs). A potential breakout above the 157.5 handle could pave the way for a move towards the April 29 high at 160.209. Conversely, a drop below the 155 handle might attract selling pressure, with the 50-day EMA acting as a support level. Further downside could see the USD/JPY targeting the 151.685 support level.
Considering the Relative Strength Index (RSI) reading of 60.77, there is a suggestion that the USD/JPY could rally towards the April 29 high before potentially entering overbought territory. This indicator provides insights into the potential price movements of the currency pair in the near future.
The dynamics of the USD/JPY currency pair are influenced by a combination of fundamental factors such as central bank policies, economic indicators, and market sentiment, as well as technical analysis signals. Traders and investors need to monitor these aspects closely to make informed decisions in trading the USD/JPY.