Title: USD/JPY Outlook: Bullish Momentum Builds Ahead of U.S. CPI Report
Author: Futunn News
As expectations for a robust U.S. Consumer Price Index (CPI) print rise, attention turns toward the USD/JPY pair, which is exhibiting signs of reinforcing its bullish trajectory. Traders and analysts are closely monitoring the macroeconomic landscape for signs of further upward pressure on the U.S. dollar, particularly as markets gear up for the latest U.S. inflation data, which could prove pivotal for near-term Forex trends.
Overview
The USD/JPY currency pair has recently entered a phase of notable bullish momentum. Despite intermittent pullbacks, the broader uptrend remains intact, supported by resilient U.S. economic indicators, rising Treasury yields, and divergence in monetary policy between the Federal Reserve and the Bank of Japan (BoJ).
Key Factors Driving USD/JPY Strength
– Fed Policy Expectations:
– The U.S. Federal Reserve remains committed to maintaining a restrictive policy stance for as long as necessary to anchor inflation.
– Market pricing for interest rate cuts has shifted over recent weeks, with investors now projecting fewer rate cuts in 2024 than initially expected.
– Strong economic data continue to support the Fed’s rationale for higher-for-longer interest rates.
– U.S. Treasury Yields:
– Two-year and ten-year Treasury yields have remained elevated, offering support to the U.S. dollar.
– The link between yields and USD/JPY remains significant, with increases in U.S. bond yields often preceding upward movement in the currency pair.
– Upcoming CPI Report:
– The core CPI (excluding food and energy) is expected to increase 0.3% month-over-month for April, which would confirm persistent inflationary pressures.
– Year-over-year, core CPI is still elevated above the Fed’s 2% target, justifying tighter policy and boosting the attractiveness of U.S. assets.
– Bank of Japan’s Dovish Stance:
– While the BoJ exited its negative interest rate regime in March, its forward guidance remains comparatively dovish.
– Inflation in Japan is rising, but wage growth and demand dynamics remain muted, limiting the scope for aggressive hikes.
– As such, the wide interest rate differential between the U.S. and Japan favors the dollar.
Technical Picture: USD/JPY
On the technical front, the USD/JPY pair has managed to regain buyer interest after every correction, reflecting strong underlying support and trader confidence in the pair’s upward momentum.
– Key Support and Resistance Levels:
– Immediate support lies near the 152.00 psychological mark. This level has acted as a consolidation zone for the last several sessions.
– A confirmed break above the 154.00 level may unlock further bullish potential, possibly driving the pair toward 155.50 and beyond.
– On the downside, any breach below 151.50 could open the door for a test of the 150.80–151.00 range.
– Momentum Indicators:
– Relative Strength Index (RSI) on the daily chart remains in bullish territory, suggesting that momentum remains with buyers.
– Moving averages align in a bullish configuration, with the 50-day simple moving average (SMA) trading well above the 200-day SMA.
– Chart Patterns and Sentiment:
– A bullish flag formation appears to be developing on the four-hour chart, typically a continuation pattern in trending markets.
– Volume analysis also supports continued interest, particularly on rallies, reinforcing the prevailing uptrend.
Macro Backdrop: U.S. vs. Japan
– United States:
– Recent economic indicators such as the robust labor market, resilient consumer spending, and strong corporate earnings have helped reaffirm the positive outlook for the American economy.
– With inflation still exceeding the Fed’s target, policymakers have minimal incentive to ease policy prematurely.
– As a result, the U.S. dollar has remained broadly strong, particularly
Explore this further here: USD/JPY trading.