USD/JPY Forecast: Easing US Inflation Confirms the Fed Pivot

• US consumer price inflation increased less than anticipated last month.
• The core CPI increased by 6.0% in the twelve months ending in November.
• Fed funds futures have factored in a lower terminal rate of 4.8% in May.

Today’s USD/JPY forecast is bearish as the dollar extends Tuesday’s losses. The dollar fell sharply across the board on Tuesday after data revealed that US consumer price inflation increased less than anticipated last month. It confirmed predictions that the Federal Reserve will pause raising interest rates after its meeting on Wednesday.

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According to data, the cost of gas and used automobiles decreased in November, resulting in the smallest annual inflation increase in over a year. Overall, consumer prices in the United States increased moderately on an annual basis.

The CPI increased 7.1% in the twelve months ending in November, the weakest increase since December 2021, after increasing 7.7% in October.

After increasing by 0.3% in October, the CPI grew by 0.2% last month after excluding volatile food and energy components. The core CPI increased by 6.0% in the twelve months ending in November after rising by 6.3% in October.

The research confirmed popularly held expectations for a 50 basis point rise in the Federal Reserve’s benchmark interest rate when it makes its announcement on Wednesday.

Fed funds futures have also factored in a lower terminal rate of 4.8%, expected to be reached in May when the Fed stops raising rates. That was lower than the 5.1% estimate from late last month.

USD/JPY key events today

Investors expect a 50bps rate hike from the Fed after today’s FOMC meeting. They will pay more attention to the economic outlook and Jerome Powell’s press conference.

USD/JPY technical forecast: Strong bearish candle signifies a sentiment shift

Looking at the chart above, it is clear that sellers are ahead. This can be seen in the strong bearish candle that broke below the 30-SMA. It can also be seen in the RSI, which is trading below 50.

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Sellers took over at the 137.75 key resistance level and were strong enough to push the price past the next support level at 136.05. The price is currently pulling back and might retest the recently broken support. Since buyers are not showing much strength, the price might bounce lower to 134.03 support.

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