Eyeing a break towards 150.00 amid bullish momentum. US inflation data and Fed's stance crucial in determining USD strength against JPY, with technical indicators hinting at overbought conditions.
- As the closing last week was, the price of (USD/JPY) continued its upward path, stable around the resistance level of 149.55 at the time of writing the analysis.
- That is the closest to moving towards the psychological resistance level of 150.00, which confirms the strength and control of the bulls over the trend, and at the same time the technical indicators will move as a result. Towards overbought levels.
- The US dollar is still the strongest against the rest of the other major currencies in light of the US Federal Reserve following a tightening approach, and in contrast, the Bank of Japan is still with a negative interest policy.
The strength of the US dollar today will coincide with the announcement of an event that will affect expectations regarding the future tightening of the US Central Bank’s policy. The U.S. CPI inflation rate for January is expected to reach 2.5% year-on-year when it is released Tuesday, according to Truflation, a result that would represent a significant decline from the 2.9% the market is looking for and lead to dollar weakness.
In general, the price of the US dollar has tended to rise during the year 2024, as market participants fade expectations regarding the timing of the first interest rate cut by the US Federal Reserve due to strong economic data. But any decline in the inflation reading, as predicted by Truflation, could undo some of the US dollar's recent strength as markets raise bets on another interest rate cut.
Truflation estimates the inflation rate in the United States of America through daily indexing of goods and services from several data points. The company says this ensures its data beats monthly metrics. Lower inflation would put it within striking distance of the Fed's 2.0% target, but the company warns that its January forecast is based on last year's category weights from the BLS. Inflation also warns that inflation will rise again over the coming months as the US economy continues to show strength, and “there is therefore little reason for the Fed to start cutting interest rates before the summer.”
Forex Brokers We Recommend in Your Region
This would also ensure that any weakness in the US dollar price following Tuesday's data release would be relatively short-lived.
Truflation data shows that in January, consumers reduced their spending on luxury goods typically purchased during the holiday season. The main categories in Truflation's real-time US CPI that contributed to the downward trend were food, alcohol, apparel, and household durables – down 0.58%, 0.47%, 1.29%, and 0.62% on a monthly basis, respectively. The transportation sector also saw a decline of 0.48%, recording the fourth consecutive monthly decline and reducing the annual inflation rate to 1.78% year-on-year.
On another level, The US labor market is showing continued strong job growth and wage pressures, which in turn supports inflation and is a major reason why the US Federal Reserve has signaled that it will not rush to cut interest rates.
Expectations for USD/JPY Today:
According to the performance on the daily time frame chart above, the general trend of the USD/JPY currency pair is still bullish, and as I mentioned above, the current movement will support the move towards the psychological resistance level of 150.00, which will support the strength and control of the bulls over the trend, and at the same time it will move the technical indicators. Towards overbought levels. Taking into account that the results of today's economic calendar regarding the US inflation numbers will have a strong reaction to the performance of this currency pair, in addition to the signals of central bank officials regarding the future of tightening.
Until now, I still prefer to buy USD/JPY pairs from every falling level.