Where USD/JPY is heading?
USD/JPY Fundamental Outlook
Growing speculation for another Federal Reserve rate hike may keep the USD buoyant as the Personal Consumption Expenditure (PCE) Price Index points to sticky inflation. The unexpected uptick in the core PCE, the Fed’s preferred gauge for inflation, along with the 1.1% rise in US durable goods orders,better than expected jobless claim data, and healthy employment data may push the Federal Open Market Committee (FOMC) to further embark on its hiking cycle, and it remains to be seen if Chairman Jerome Powell and Co. will project a higher trajectory for US interest rates as the central bank is slated to update the Summary of Economic Projections (SEP) at its next meeting in June. On May 24, Fed released the minutes of the FOMC meeting that was held on May 2-3, 2023. The Minutes indicated that Fed remained worried about inflation, which is not surprising as all Fed speakers have highlighted the importance of the fight against inflation. Speculation surrounding Fed policy may sway USD/JPY as the CME FedWatch Tool now reflects a greater than 60% probability for another 25bp rate hike, and growing expectations for higher US interest rates may lead to a further appreciation in the exchange rate as the Bank of Japan (BoJ) sticks to Quantitative and Qualitative Easing (QQE) with Yield-Curve Control (YCC).
Technical Outlook.
USD/JPY registers a fresh yearly high (140.94) following a batch of better-than-expected data out of the US, and the move above 70 in the Relative Strength Index (RSI) is likely to be accompanied by a further advance in the exchange rate like the price action from last year.
Chart prepared by Kamal Shah, Analyst
USD/JPY on Investing.com
In the above technical chart,
* RSI just came down from overbought territory and could not break the last year December high which is 142.5 where 61.8% Fibonacci retracement.
* Next area of interest comes in around the November 2022 high (148.83), but failure to extend the recent series of higher highs and lows may lead to a near-term pullback in USD/JPY, with a move below the 138.70 (78.6% Fibonacci extension) to 140.00 (23.6% Fibonacci retracement) region bringing the 200-Day SMA (137.23) back on the radar.
* USD is continuously trading higher and higher, which is another sign of a strong uptrend.
* If it cannot break immediate resistance at 142.5 (61.8% retracement), it can retest immediate
support at 137.4 (200 DMA).Over all, USD/JPY is in a strong uptrend, but if it cannot break 141.5 and other thematic markets support it, It could retest 200DMA. Before taking any trade on USD/JPY, one should look at how other currency pairs, especially EUR/USD and gold, behave.
