USD/JPY Forecast: Lower as US Treasury Yields Dip, Fed’s Rate Path Uncertain

Highlights

• Dollar/Yen weakens on dip in U.S. Treasury yields.
• Traders await release of inflation data and Fed officials’ stance on rates.
• Debt ceiling negotiations add to USD/JPY traders’ concerns.

Overview

The Dollar/Yen is edging lower on Friday after hitting its highest level since Nov. 23 the previous session. Today’s early weakness is likely a reaction to a dip in U.S. Treasury yields.

At 10:00 GMT, the USD/JPY is trading 139.739, down 0.311 or -0.22%. On Thursday, the Invesco CurrencyShares Japanese Yen Trust settled at $66.42, down $0.38 or -0.57%.

USD/JPY Traders Await Inflation Data

USD/JPY traders were eagerly anticipating the release of the personal consumption expenditures price index for April, which is the Federal Reserve’s preferred measure of inflation. Recently, there has been conflicting information from Fed officials regarding the future of interest rates.

Fed Officials Diverge on Interest Rates

Some officials have indicated a preference for pausing the Fed’s campaign to raise interest rates, as they believe the full impact of higher rates on the economy has not yet been fully realized. On the other hand, some officials believe that additional rate hikes may be necessary to reduce inflation, while others have stated that their decisions will depend on upcoming economic data.

In addition to the inflation index, reports on personal spending and income for April, as well as durable goods orders data, are also expected to be released on Friday.

Traders Monitor Debt Ceiling Negotiations

USD/JPY traders are closely monitoring the negotiations on the debt ceiling deal as the June 1 deadline approaches, which could result in a potential default on U.S. debt obligations. Talks seemed to make progress on Thursday, but there are still ongoing discussions on sensitive issues, as mentioned by Republican negotiator Rep. Patrick McHenry.

Technical Analysis

The USD/JPY is hovering near its highest level since November 23 after overcoming 138.452 (R1) earlier in the week. This level is new support.

A sustained move over 138.452 (R1) could generate the momentum needed for a near-term surge into 140.498 (R2). Yesterday’s rally fell just short of this level, topping out at 140.229. Nonetheless, the strong price action has put 144.432 (R3) on the radar.

Meanwhile, a sustained move under 138.452 will signal the return of sellers. However, as long as 134.518 (PIVOT) remains intact, the long-term bias will be to the upside.

Resistance & Support Levels