- The bullish momentum for USD/JPY is ongoing, albeit at a decreased speed.
- Traders have reduced their predictions for a 50-bps rate cut by the Fed in November.
- Analysts foresee a decline in inflation from 2.5% to 2.3%.
The USD/JPY outlook is facing uncertainties as participants await the crucial US CPI report. However, after a surge fueled by diminished expectations for a Fed rate cut, the dollar remains near a ten-week peak against the yen.
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The bullish trend for USD/JPY is continuing but slowing down ahead of vital US inflation data. Initially, a strong rally occurred due to reports highlighting a resilient labor market, with the US nonfarm payrolls showing an unexpected rise in job growth for September and a decline in unemployment rates. Consequently, traders revised their expectations regarding a 50-bps rate cut from the Fed in November.
Prior to the jobs report, Powell adopted a slightly hawkish stance, indicating the possibility of two additional quarter-point rate cuts in 2024. However, before this shift, the tone was more dovish, which led to the substantial rate cut in September. The FOMC meeting minutes reflected a consensus regarding the notable rate cut, though they were outdated considering they were released before the strong jobs report.
Currently, the market is pricing in an 85% likelihood of a 25-bps rate cut come November. Nonetheless, this perspective could change significantly following the upcoming US CPI report. Economists predict a decrease in inflation from 2.5% to 2.3%, while a 0.1% increase is anticipated for the monthly figure after a 0.2% rise in August. A significant inflation spike could alter the Fed’s rate cut decisions, whereas easing inflationary pressures could pave the way for another cut in November.
Key Events Impacting USD/JPY Today
- US Core CPI m/m
- US CPI m/m
- US CPI y/y
- US Unemployment Claims
USD/JPY Technical Forecast: RSI Indicates Declining Bullish Sentiment
Technically, the USD/JPY has reached new heights, trading significantly above the 30-SMA with the RSI above 50, suggesting a bullish tendency. However, the price action has shifted from significant bullish candles to smaller ones, indicating a potential decline in bullish strength.
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Moreover, the RSI is showing a bearish divergence with price, indicating a loss of momentum. As such, bears may be poised to take control. Should the price breach its bullish trendline, it could decline towards the 30-SMA or lower. Conversely, bulls may continue to post higher highs.
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