Recent speeches by FOMC members Raphael Bostic, Loretta Mester, and Michelle Bowman have indicated a potential adjustment in the Fed interest rate to reach the 2% inflation target. Bowman also mentioned the possibility of a rate hike if consumer prices rise. This has led to speculations among investors regarding a Fed rate cut in September based on the April US CPI Report and retail sales figures. However, concerns about the US labor market and inflation might influence the likelihood of a rate cut.
The CME FedWatch Tool indicates a decrease in the probability of the Fed keeping interest rates unchanged in September, dropping from 38.8% to 35.2% by May 17. This shift in expectations could lead to significant movements in the USD/JPY currency pair, depending on economic data from Japan and central bank commentary.
Technical Analysis of the USD/JPY Currency Pair
The USD/JPY has been trading above the 50-day and 200-day EMAs, signaling a bullish trend. The possibility of the currency pair reaching the 158 handle after surpassing the 156 handle is being considered. A breakthrough at 158 could result in a push towards the April 29 high of 160.209. However, a decline below the 50-day EMA might trigger a test of the 151.685 support level.
Investors are advised to keep an eye on the Tertiary Industry Index and central bank commentary for potential market-moving events. The 14-day RSI currently stands at 55.57, suggesting a possible return to the April 29 high of 160.209 before reaching overbought levels.
Overall, the outlook for the USD/JPY currency pair is heavily influenced by the Federal Reserve’s interest rate decisions and economic indicators from both the US and Japan. Traders should remain vigilant for any changes in rhetoric from central bank officials, as these could significantly impact the direction of the currency pair.