- For four trading sessions in a row, the bulls moved the US dollar against the Japanese yen, USD/JPY, to the upside, in light of the disappointment of the markets and investors from the Bank of Japan's adherence to its ultra-easy monetary policy, with a negative interest rate.
- The gains of the current rebound reached the resistance level of 143.74, which is stable around it at the time of writing the analysis.
- As it is known, the US dollar pairs, and even the financial markets in general, are anticipating the reaction from the announcement of US inflation numbers later today, which will have a strong and direct reaction on the future of raising US interest rates.
Before the current rebound, the USD/JPY currency pair was under downward pressure, reaching 141.51 as investors interacted with the latest US Non-Farm Payrolls (NFP) data. The exchange rate of the dollar fell against the Japanese yen after the US published mixed data on non-farm payrolls. In one report, the Bureau of Labor Statistics (BLS) showed that the US economy added more than 187,000 jobs in July, down from the previous month's increase of 209,000 jobs. The data showed that the labor market is declining.
On a positive note, wage growth in the country continued in July, rising by 4.4% while the unemployment rate fell to 3.5%. However, strong wage growth means that the Fed may continue to raise US interest rates in the coming months.
This view was echoed by Fed's Michelle Bowman, who said that “The latest low inflation reading was positive, but I will look for consistent evidence that inflation is on a meaningful path toward our 2% target as I consider rate hikes.”
Other Fed officials have signaled more rate hikes in the next few meetings. Those officials include Raphael Bostick of the Atlanta Fed and Austin Golby of Chicago. They pointed to the fact that core inflation remained stubbornly above the 2% target.
The next major news for the USD/JPY pair will be the US inflation data due on Thursday. Economists polled by Reuters believe core US inflation remained at 4.8% while the core consumer price index fell slightly to 3.4%. If these analysts are accurate, that means the Fed will likely deliver another 25 basis point increase in September.
USD/JPY Technical Outlook
According to the trading, the USD/JPY pair rose to a high of 143.76, as investors reacted to the downgrade of Fitch's credit rating. It then quickly erased some of those gains after the US published Nonfarm Payrolls data. The current level of 141.92 is important because it was the highest point on July 23rd.
It also crossed the 25- and 50-period moving averages while the Stochastic Oscillator moved into the oversold level. Therefore, the pair is likely to continue falling as downgrade concerns fade and as investors await US inflation data. The 140 level will provide important support.
Positivity in US inflation data means more bullish momentum for the USD/JPY currency pair, and the next peaks will be 144.30 and 145.60, respectively.
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