- The dollar strengthened last week following consumer inflation data that surpassed expectations.
- Market analysts estimate a 91% probability that the Fed will reduce borrowing rates by 25 basis points in November.
- Investors are keenly awaiting the upcoming US retail sales report.
The outlook for USD/JPY appears bullish, with the dollar maintaining its strength after favorable consumer inflation results. In contrast, the yen showed weakness despite Ishiba’s statements indicating he would refrain from intervening in the BoJ’s policy changes.
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The dollar gained traction last week due to consumer inflation metrics that exceeded predictions. The CPI registered an increase of 0.3% in September, quashing hopes for any significant Fed rate cuts this year. These inflation figures emerged alongside the NFP report, which disclosed an unexpected rise in US job growth.
Initially, policymakers adopted a dovish stance due to concerns about a weakening US labor market. Consequently, focus shifted to sustaining growth and demand, prompting the central bank to implement a 50-bps rate reduction, which fueled expectations for further cuts in 2024, and pressured the dollar.
However, the dollar rebounded as new data altered this perspective. Currently, there’s a 91% likelihood that the Fed will reduce borrowing costs by 25-bps in November. Moreover, market players are also weighing a slight possibility of a pause. The next significant report on retail sales could change the rate cut projections.
Additionally, the forthcoming presidential election may introduce volatility into the markets, leading participants to adopt a cautious approach before the final outcomes are determined.
In the meantime, the yen depreciated despite Ishiba’s remarks on Saturday about remaining outside the BoJ’s price stability mandate. His previous comments suggested a lack of support for a near-term rate increase.
Key Events for USD/JPY Today
The beginning of the week is expected to be slow for USD/JPY, as neither the US nor Japan is set to release significant economic data.
Technical Outlook for USD/JPY: Weaker Bullish Trend
From a technical standpoint, the USD/JPY pair is trending upward after testing the 30-SMA support. The bullish sentiment remains strong, with prices staying above the SMA, while the RSI hovers near overbought territory. However, a slight bearish divergence indicates a potential weakness.
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Additionally, price movements depict smaller candles, indicating exhaustion. As a result, bullish traders may struggle to overcome the 150.01 resistance level. Conversely, a drop below the SMA could signal a shift towards a bearish sentiment.
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