Investors will be closely watching the RCM/TIPP Economic Optimism Index on Tuesday, as economists predict a slight increase from 43.2 to 44.1 in May. While recent indicators like the ISM Services PMI point to a potential slowdown in the US economy, a positive surprise in the Index could boost confidence in the economy’s resilience and help alleviate fears of a recession. However, any reading below 50 would still indicate a prevailing pessimism towards the economic outlook.
Thursday will bring attention to the US labor market, with higher-than-expected jobless claims potentially impacting the demand for USD/JPY. Weaker labor market conditions could have a ripple effect on wage growth, consumer confidence, and ultimately, consumer spending. An unexpected surge in jobless claims might even bolster expectations of a Federal Reserve rate cut in September. Economists are anticipating an increase in initial jobless claims from 208k to 210k.
On Friday, the release of the Michigan Consumer Sentiment Survey will be another key event to watch. Forecasts suggest a slight decline in the Michigan Consumer Sentiment Index from 77.2 to 77.0 in May. A drop in consumer sentiment figures could signal a downward trajectory in consumer spending, potentially influencing inflation and the path of Fed interest rates. It will also be crucial to consider the Michigan Inflation Expectations Index, which is expected to decrease from 3.2% to 3.1% in May.
In addition to economic data, investors should keep an eye on commentary from Federal Open Market Committee (FOMC) members. Their reactions to inflation figures and the US Jobs Report could have a significant impact on market sentiment. Near-term trends for USD/JPY will be influenced by data from the services sector, wage growth, and household spending in Japan. Positive numbers might raise expectations of a Bank of Japan rate hike, although any potential shift in Fed rate expectations for September would have a more pronounced effect on USD/JPY.
The USD/JPY currently sits above the 50-day and 200-day Exponential Moving Averages (EMAs), signaling bullish momentum. A retest of the 155 level could pave the way for a move towards 160, with a break above that level potentially targeting the high of 160.209 from April 29. However, a breach below the 50-day EMA and the support level at 151.685 could open the door to a push below 150. The Relative Strength Index (RSI) at 45.90 suggests that there is still room for further downside before reaching oversold conditions.
The outlook for USD/JPY in the coming days will be shaped by a combination of economic data releases, central bank commentary, and technical indicators. Investors should pay close attention to key events such as the RCM/TIPP Economic Optimism Index, US labor market data, the Michigan Consumer Sentiment Survey, and FOMC member speeches. Additionally, monitoring trends in the USD/JPY exchange rate and considering potential support and resistance levels will be crucial in navigating the intricacies of the forex market.