It seems that the recent stability of the performance of the USD/JPY currency pair turned its strongest gains towards the resistance level 143.88 on an important date today with the announcement of US inflation figures. It will have a strong and direct reaction to the future expectations of raising US interest, which was the reason for record gains for the US dollar against the rest of the other major currencies. In contrast to what affects the Japanese yen with the collapse, the continuation of the easing policy of the Japanese Central Bank with negative interest rates so far, and it is the only global central bank that follows that policy so far.
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At the beginning of this week trading was mostly quiet in the global financial markets as the fundamental question remained unanswered for investors: Will the global economy be able to avoid a painful recession after central banks around the world raised interest rates at an aggressive pace to hide inflation?
Adding to the uncertainty was a short-lived armed insurrection in Russia over the weekend. The war in Ukraine has already helped send inflation soaring around the world, but investors are stumped by the brief insurrection of mercenary soldiers.
This week does not have many economic reports or earnings reports that can help answer a key question for investors. Friday's report will show how the Fed's preferred measure of inflation behaved in May, but data did arrive earlier this month on prices at the consumer and wholesale levels. More focus will be placed on inflation data for June, which will arrive next month. It will also release the next monthly jobs report, which will arrive over two Fridays.
For now, traders are betting that the reports will prompt the Federal Reserve to raise interest rates by a quarter of a percentage point at its next meeting, which runs from July 25-26, according to data from CME Group. The Fed has been raising its key overnight rate at a rapid pace since early last year, although it refrained from making a move earlier this month. More importantly, many Wall Street analysts expect the rally next month to be the last in this cycle.
Meanwhile, the Fed has suggested it may raise interest rates twice more because inflation remains stubbornly high even if it has fallen from its peak last summer. The difference in expectations is slight, but each successive increase could mean a much larger impact on the economy than the last. High rates undermine inflation by applying the brakes to the entire economy and increase recession risks if they remain too high for too long.
Forecasts of the US dollar against the Japanese yen today:
- There is no change in my technical point of view for the performance of the price of the USD/JPY currency pair, as the general trend is still bullish.
- There will be no first reversal of the trend, as is evident on the daily chart below, without stability below the psychological level 140.00.
- The bulls are stronger in control and will strengthen if US inflation figures came in stronger than expected, as they will support the path of tightening the US Federal Reserve's policy.
On the contrary, if the US inflation figures came in less than expected. The currency pair may be subject to profit-taking sales. I still prefer selling the currency pair from the current record highs.
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