- Data on Monday revealed a bigger-than-expected 0.7% increase in US retail sales.
- Fed policymakers have gradually lost confidence in their progress toward lowering inflation.
- Japanese officials have kept up their verbal warnings against large currency declines.
The USD/JPY price analysis is fueled by bullish sentiment, reaching a 34-year peak amid a sour market mood. The dollar surge, driven by upbeat US data, amplified the yen’s decline, prompting investor war toward a possible Japanese intervention.
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Data on Monday revealed a bigger-than-expected 0.7% increase in US retail sales. This was the third consecutive positive key report, indicating a resilient economy. Moreover, the retail sales report is a leading indicator of consumer spending. If consumers still have a lot of money to spend, it is a sign that the economy is doing well. This could, in turn, lead to a spike in inflation, which remains above the Fed’s target of 2%. Therefore, the Fed will most likely delay rate cuts.
Furthermore, policymakers have gradually lost confidence in the progress made to lower inflation. Consequently, most have assumed a hawkish stance, calling for patience on rate cuts. As a result, markets expect the first rate cut in September. At the same time, they expect a smaller 45 bps in total rate cuts this year. This shift in outlook has propelled the dollar and Treasury yields to new highs, putting downward pressure on the yen.
Japanese officials have kept up their verbal warnings against large currency declines. However, this has had little effect as the USD/JPY price has broken above $154. With the $155 level looming large, markets expect an intervention. Such an outcome could strengthen the yen for some time.
USD/JPY key events today
- Fed Chair Powell speaks.
USD/JPY technical price analysis: Cautious bullish move signaling reversal
On the charts, the USD/JPY price has broken above the 154.00 key resistance level to make a new high. Therefore, the price is on a bullish trend. However, while the price has a higher high, the RSI has a lower one, showing a divergence.
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The bulls are in the lead, but momentum is fading. Still, if bulls keep control, the price will soon retest the 155.01 resistance level. On the other hand, if the divergence plays out, bears will make a strong move to retest the 30-SMA or break below. Meanwhile, the divergence will drag on as the bullish trend continues if bears are not ready to reverse the trend.
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Saqib Iqbal
