- As I mentioned before, the clear discrepancy between the US Federal Reserve's aggressive stance and the Japanese central bank, which has the only negative interest rate among global banks, will remain an important factor for bulls in controlling the performance of the USD/JPY price.
- The strongest expectation is that the US Federal Reserve will raise the federal funds rate again, to its highest level since 2001, as it struggles to bring down inflation.
- However, the hope among traders is that this will be the final increase for this cycle because inflation has been subsiding since last summer.
High rates undermine inflation by slowing down the entire economy at a brisk pace, as well as by hurting the prices of stocks and other investments. This caused many investors to prepare for a recession, but the US economy has so far remained resilient due to a remarkably strong labor market. A report released Monday indicated that the US service industry continues to grow, but at a slower pace than economists had expected. On the upside of the economy, the preliminary report from S&P Global also indicated that US manufacturing is not doing as badly as feared. Overall, business activity growth during July appears to have been at its slowest level in five months.
On the other hand, US stocks have risen strongly this year, and the S&P 500 index rose by 18.6% in the hope that the economy will continue to grow as inflation subsides enough to force the Federal Reserve not only to stop raising interest rates but to start lowering them next year. Such a not-too-generous and not-too-cold outcome would mean that the Fed will implement a disingenuous “soft landing” on the economy.
USD/JPY Technical Outlook
There is no change in my technical point of view for the performance of the price of the USD/JPY currency pair, as the general trend is still upward, and the gains for the current rebound will be at 142.35 and 143.50, respectively.
And the last level may pave the way for this month's top at 145.00 again. On the other hand, and for the same period of time, the bears will not have the power to control the trend without returning to the support area at 139.20 again. The currency pair may remain in the current bounce range until the reaction to the announcements of the US central bank tomorrow and the Japanese central bank on Friday.
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