USD/JPY Forecast: Testing Multi-Month High as Traders Await PCE Inflation Data

Highlights

• USD/JPY reaches multi-month high ahead of U.S. inflation data.
• Strong economic indicators, including jobless claims and GDP revision, boost the U.S. dollar.
• Expectations of rate hikes reinforced by Fed Chair’s remarks and market sentiment.

Overview

The USD/JPY climbed to a multi-month high of 145.069 on Friday as traders eagerly awaited the release of key U.S. inflation data. This surge followed positive economic indicators, including a substantial drop in weekly initial jobless claims and an upward revision of first-quarter gross domestic product (GDP) growth.

The strengthening dollar against the Japanese yen for four consecutive days suggests diverging central bank policies between the U.S. and Japan. Investors now closely monitor the possibility of the Bank of Japan (BOJ) intervening in the currency as it nears the 145 mark.

Positive US Economic Indicators

On Thursday, the government’s report of a significant 26,000 decrease in weekly initial jobless claims, surpassing economists’ expectations, showcased a robust labor market. Furthermore, the Commerce Department revised its estimate of first-quarter GDP growth to 2%, indicating a stronger-than-anticipated economic performance. These positive developments boosted U.S. Treasury yields and increased the attractiveness of the U.S. Dollar as an investment.

Powell’s Remarks and Bostic’s Highlight Reinforce Expectations for Rate Hikes

Federal Reserve Chair Jerome Powell’s remarks at an ECB conference hinted at a potential rate increase at the Fed’s July meeting, reinforcing expectations of further rate hikes. Additionally, Atlanta Federal Reserve President Raphael Bostic highlighted the need for rate adjustments if price growth deviates from the target or inflation expectations become challenging.

Market expectations for a 25 basis-point hike in July moved up to 86.8% following the encouraging data. Traders are now eagerly awaiting the release of personal consumption expenditures (PCE) data for May, particularly core PCE, which is expected to exceed the Fed’s 2% target at 4.7% year-on-year.

Market Expects July Hike as Traders Await PCE Data

In conclusion, the USD/JPY climbed to a multi-month high as positive economic indicators in the U.S. bolstered market sentiment. The potential for diverging central bank policies and the anticipation of higher rates contributed to the strengthening dollar. Traders now focus on the release of PCE data to gain further insights into the inflationary landscape. This should have an impact on future monetary policy decisions.

Technical Analysis

The USD/JPY market analysis reveals mixed sentiment as the current price of 144.073 remains slightly below the previous close. However, the market remains bullish as the price is above both the 200-4H and 50-4H moving averages. The neutral reading of the 14-4H RSI further supports this sentiment.

The minor support area is identified between 143.682 and 143.874, while the main support area is between 141.206 and 141.476. With the current price above both support, traders are leaning towards a bullish outlook. Traders should closely monitor price movements and the interaction with these levels for further market insights. Especially around 145.000 because of the threat of a potentially bearish intervention by the BOJ or the Japanese government.