- As mentioned before, the upward trend for the USD/JPY pair will remain intact.
- For several consecutive trading sessions, the pair has been moving within tight ranges amid an upward bias, confirming that the pair may be poised for a strong move in either direction.
- Especially, after the release of the preferred US inflation reading by the Federal Reserve this week.
- Prior to that, holidays will continue to impact liquidity and market performance.
Overall, according to economic calendar data, USD/JPY could take cues from medium-to-high US data, including the core PCE inflation index due later in the week. Note that this is the Fed's favourite inflation measure, so the outcome is likely to impact policy expectations. Accordingly, strong inflation figures could continue to support expectations of "higher for longer" interest rates, which could mean a higher USD price. On the other hand, a downside surprise could revive talk of earlier rate cuts in May or June, which could lead to sharp selling of the US currency. Analysts expect a 0.3% increase to follow the previous 0.4% increase, reflecting continued but slower price pressures for the US economy in February.
Will the USD continue to gain in the coming days?
The continued strength of the US dollar will ensure that one of the world's leading forecasters remains at the top of the pack with his contrarian prediction that the US dollar will outperform in 2024. The dollar is the best performing G10 currency in 2024 and could maintain that strength, according to Valentin Marinov, FX analyst at Credit Agricole. He said: "The USD is still on track to outperform all its G10 foreign exchange peers in Q2 2024, in a major blow to the consensus (but not our) bearish USD 2024 view."
Credit Agricole was the top EUR/USD forecaster (out of 76) according to Bloomberg's FX forecast rankings for Q4 2023. It was number six (out of 68) with its GBP/USD forecast for the same period. The forecast for continued USD strength comes after the Fed's March policy update, which saw policymakers slightly adjust the path of the Fed's key interest rate. The dollar sold off after the meeting, as investors took a broadly "dovish" stance on the Fed's balanced guidance.
Meanwhile, Credit Agricole believes the market may have gotten it wrong again, after all starting the year on the wrong side of the Fed, betting on more US rate cuts in 2024 (as many as 150 basis points) than expected. In December, the Fed forecast three cuts, which the market eventually accepted.
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Moreover, the analyst warns that "the USD's surprise reaction to the March FOMC meeting raises the odds that some market participants are wrong twice for roughly the same reasons." Also, he added that the US Federal Reserve should in no way be interpreted as pessimistic, citing three reasons:
(1) The new dot plot was just one member short of shifting the 2024 median to just two rate cuts.
(2) The 2025 and 2026 medians were raised by 25 basis points.
(3) US GDP forecasts were revised higher across the forecast horizon.
The analyst added, "While our US economist sticks to his call for the first Fed cut in July and only 50bp of policy easing this year, our position remains biased towards buying any dips in USD that may be exacerbated by typically negative seasonality in April." Furthermore, Credit Agricole expects EUR/USD to reach 1.07 by June 2024 and 1.05 by the end of the year. A gradual recovery is expected through 2025. For GBP/USD, the forecast is 1.26 by mid-2023 and 1.25 by December. Consequently, a steady recovery is expected through 2025.
USD/JPY Technical analysis and Expectations Today:
There is no change in our technical view, as the overall trend for the USD/JPY currency pair remains bullish, and there will be no trend break without moving towards support levels at 149.80 and 148.00 respectively. According to the performance on the daily chart attached, the gains of the upward trend towards resistance levels at 151.85 and 152.60 are driving technical indicators towards overbought levels.
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