- The bullish trend for USD/JPY continued at a slower pace.
- Market participants slashed bets for a 50-bps November Fed rate cut.
- Economists expect inflation to ease from 2.5% to 2.3%.
The USD/JPY forecast shows dark clouds gathering over the recent bullish trend as market participants await the all-important US CPI report. Still, after rallying on lower Fed rate cut expectations, the dollar hovered near a ten-week high against the yen.
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The bullish trend for USD/JPY continued at a slower pace ahead of crucial US inflation data. Initially, a robust rally followed data showing a resilient labor market. The US nonfarm payrolls report showed an unexpected jump in job growth in September. At the same time, unemployment eased. As a result, market participants slashed bets for a 50-bps November Fed rate cut.
Before the jobs report, Powell had changed his tone to slightly hawkish. He suggested two more quarter-point rate cuts in 2024. However, before that, policymakers were quite dovish, leading to the massive September rate cut. As a result, the FOMC meeting minutes showed agreement with the super-sized rate cut. However, it was outdated since it came well before the blockbuster jobs report.
Currently, market participants are pricing an 85% chance of a 25-bps rate cut in November. However, this outlook might shift further with the upcoming US CPI report. Economists expect inflation to ease from 2.5% to 2.3%. Meanwhile, the monthly figure might increase by 0.1% after a 0.2% increase in August. The outlook for Fed rate cuts might shift significantly if inflation spikes well above estimates. On the other hand, easing price pressures will support another rate cut in November.
USD/JPY key events today
- US core CPI m/m
- US CPI m/m
- US CPI y/y
- US unemployment claims
USD/JPY technical forecast: RSI signals fading bullish enthusiasm
On the technical side, the USD/JPY price has rallied to a new peak. It trades well above the 30-SMA with the RSI above 50, supporting a bullish bias. However, price action has shifted from massive green candles to mall ones. This could indicate fading strength for bulls.
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At the same time, the RSI has made a bearish divergence with the price, showing fading momentum. Therefore, bears might be ready to take charge. If the price breaks below its bullish trendline, it might fall to the 30-SMA or lower. Otherwise, bulls might continue making higher highs.
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