- The price of the USD/JPY currency pair is moving in a neutral performance in narrow ranges, pending the announcement of US inflation figures, the strongest driver of the dollar this week.
- The currency pair stabilized around the level of 134.65 at the time of writing the analysis.
- The highest level was at the beginning of this week's trading, the resistance level of 135.30.
- The currency pair rebounded in the last two trading sessions with positive momentum from the US job numbers at the end of last week. Before that, it was exposed to strong selling operations that pushed it towards the support level of 133.50.
Before the inflation figures were announced, the Fed said last week that it did not yet know if it would be able to stop raising interest rates from here and cited slow progress on returning inflation to the 2% target as well as upside risks arising from a resilient US economy to discourage the market.
Since then, official figures on Friday have suggested the US labor market remained in poor shape last month with employment growing further as underemployment fell and the number of unemployed remained relatively stable.
Chicago Fed President Austin Goolsby said a prolonged standoff over the debt ceiling will make the Fed's job more difficult as it tries to assess the impact of banking sector turmoil, which he said is leading to a tightening of credit conditions. On Monday, Goolsby added in an interview with Yahoo! Financial, a potential default is described as a self-inflicted wound. “It makes it very difficult to know what the conditions will be for economic growth and the labor market.”
He called on lawmakers to get the job done. "They have to know that," he said. And they have to raise the debt ceiling.”
It's too early to tell what policymakers should do at their next meeting in June, Goolsby added, echoing remarks he made last week. He said business contacts and lending officials at the Federal Reserve Bank of Chicago are reporting the onset of a credit crunch - "or at least a credit squeeze" - after a series of bank failures since early March.
He added that a possible default, or even a confrontation until the deadline, could lead to a sharp drop in consumer confidence, increase pressure in the financial sector and raise interest rates for consumers. He also said, "We are more than a month away from the next FOMC meeting and I don't think we can decide what to do with rates now, we have to see what happens with these conditions."
Federal Reserve officials raised US interest rates last week by a quarter point to the target range of 5% -5.25%, the highest level since 2007, while signaling they may pause rate hikes at their June meeting. And a series of bank failures have clouded the economic outlook in recent months, but some policymakers said they remain focused on taming inflation, which has moderated inflation but is still twice the Fed's 2% target. The official, who votes on monetary policy decisions this year, added last week that pressure from the banking sector could hurt growth and reduce the need for officials to continue raising interest rates. Fed officials will see new price data Wednesday when the Labor Department releases its April CPI report.
Data released last week showed that the labor market remains resilient, with US employers adding an unexpectedly strong total of 253,000 jobs last month. The unemployment rate fell to a multi-decade low of 3.4%, and average hourly earnings rose 4.4% from April of last year.
Dollar expectations against the Japanese yen today:
According to the performance on the daily chart below, there is a clear break of the recent bullish channel for the USD/JPY currency pair. The bears will gain control over the trend if the currency pair moves towards the support level of 133.30 or below it. The bulls will not control the trend again without moving towards the resistance level of 137.20 again. The currency pair may continue to move in narrow ranges until a strong reaction to US inflation figures and any hints of Fed monetary policy officials.
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