USD/JPY Fundamental Daily Forecast – Bullish Over 110.902, Bearish Under 109.919 Ahead of CPI Report

The Dollar/Yen posted a strong gain on Wednesday after a report showed U.S. producer prices rebounded in August and as traders shifted their focus to consumer inflation data due on Thursday. Both producer and consumer inflation data will be important to the Federal Open Market Committee when it meets next week to discuss monetary policy.

The USD/JPY settled at 110.481, up 0.322 or +0.29%.

The USD/JPY rallied after the U.S. Labor Department said its producer price index for final demand increased 0.2 percent in August after slipping 0.1 percent in July. The rebound was driven by a surge in the cost of gasoline.

While the rebound suggests that the U.S. economy is holding on to underlying momentum, traders should note that the overall demand picture may not lead to an increase in consumer prices. All the producer price data showed was that the U.S. economy was retaining underlying momentum. Domestic producer prices actually came in less than forecast.

In Japan, Revised Industrial Production came in at -0.8% as expected.

Forecast

On Thursday, investors will get the opportunity to react to the latest data on U.S. Consumer Inflation and Weekly Unemployment Claims.

The U.S. CPI is expected to come in higher than last month at 0.3% and Core CPI is expected to come in at 0.2%.

Weekly Unemployment Claims are expected to come in at 303K, up from 298K. This number could be higher because of the loss of jobs in Texas and Florida due to hurricanes Harvey and Irma.

Stronger-than-expected CPI data should drive up U.S. Treasury yields and this should make the U.S. Dollar a more attractive investment. However, don’t expect it to sway the Fed very much. Most traders believe the central bank will pass on an interest rate hike this year and most of next year.

Weaker-than-expected consumer inflation data could drive the USD/JPY back under 109.919. This could trigger an acceleration to the downside.