- The USD/JPY outlook shows a rebound in the yen.
- Japan’s wholesale inflation rose by 4.0% in April.
- Traders are looking forward to US data on sales.
The USD/JPY outlook shows a stronger yen due to a growing divergence in policy outlooks between the Fed and the Bank of Japan. Inflation in the US continues dropping while that in Japan continues rising.
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The yen extended its rally on Thursday after data in the previous session revealed higher producer inflation in Japan. Wholesale inflation rose by 4.0% in April, increasing pressure on the Bank of Japan to keep hiking interest rates. Moreover, recent wage growth and inflation figures from the country have shown an uptrend and a conducive environment for higher borrowing costs. As a result, rate hike expectations are gradually rising, supporting the yen.
On the other hand, the US is witnessing softer inflation. Data on Tuesday revealed that inflation increased by 2.3%, below estimates of a 2.4% increase. The numbers weighed on the dollar and increased bets for a Fed rate cut in September. Rate cuts in the US and hikes in Japan will continue to shrink the gap in rates between the two countries. This will boost the yen.
Meanwhile, traders are looking forward to US data on sales, wholesale inflation, and unemployment claims. Moreover, a speech from Powell might shape the outlook for rate cuts.
USD/JPY key events today
- US core PPI m/m
- US PPI m/m
- US retail sales m/m
- US core retail sales m/m
- US unemployment claims
- Fed Chair Powell Speaks
USD/JPY technical outlook: 30-SMA break signals bearish sentiment shift
On the technical side, the USD/JPY price has broken below the 30-SMA and the 146.02 key level. The price now sits below the SMA with the RSI under 50, suggesting a bearish bias. Bulls were in the lead until the price reached the 148.51 resistance level. Here, bears resurfaced and were strong enough to take charge by pushing the price below the SMA.
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Although sentiment has shifted, the shallow uptrend remains intact. The price is still in a higher high, higher low pattern. To confirm a new downtrend, the price would have to break below its support trendline. Furthermore, it would have to make a new low below the 142.55 level. Otherwise, it might only retest the trendline before climbing to make a new high above the 148.51 resistance level.
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Saqib Iqbal
