- The USD/JPY continued its remarkable rally last week amid continued signals of further tightening by the US Federal Reserve.
- The pair extended its gains, hitting a 34-year high of 153.38 resistance.
- Similarly, the GBP/JPY rose to 193 while the EUR/JPY rose to 165 resistances.
According to forex trading platforms, the yen continued to decline after a series of strong US economic data. A report from the BLS last Friday showed that the US economy continued to add thousands of jobs in March. It added more than 303,000 jobs in March as the unemployment rate fell to 3.8%. Moreover, the US headline CPI jumped from 3.2% to 3.5% in March, the highest level in months. Also, the core inflation rate rose to 3.8%, nearly double the Fed's 2.0% target.
According to the results of the economic calendar data, a separate report revealed that the core producer price index rose from 2.1% in February to 2.4% in March. Also, the headline producer price index rose to 2.1%.
Therefore, the US dollar index DXY jumped to the upper resistance of 106.00 for the price of the US dollar during the trading of the year 2024, as investors expected that the Federal Reserve would begin raising US interest rates later this year. Instead, the bank is likely to keep interest rates steady for longer than expected. The general opinion is that the difference between interest rates in the United States of America and Japan is likely to continue to widen. Furthermore, the interest rates in the United States of America range between 5.25% and 5.50%, while interest rates in Japan are 0.0%.
In this case, the yen's only hope is for the Japanese government to intervene in the forex market. In this regard, the government said in a statement last Thursday that it does not rule out any options regarding interventions. These interventions could be like what happened in 2022 when the government injected $60 billion to support the currency. While the yen's reaction to these interventions was positive, the impact was short-lived as the USD/JPY rose to a high of 151.94 in October 2022.
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Overall, the US Federal Reserve's June interest rate implied swap odds fell to less than 17% after the strong inflation reading in the US, down from more than 58% the day before. The odds of a cut at the July meeting fell to 43% from approximately 75% previously. Now, swap markets are pricing in just one rate cut for 2024 in the US, down from a peak of seven cuts reached several months ago. Clearly, this alone explains the dominance of the US dollar.
But the question is, can this continue? To what extent can interest rate cuts be “priced in”?
In general, the answer to this question will hold the key to the dollar's transformation. Moreover, the clues will only emerge in the next set of Labor market and inflation data, due in May. Even then, it will take a series of soft prints to convince the market that the US economy is finally starting to calm down. When rate cut bets start to rise again, the dollar will turn.
USD/JPY Technical Analysis and Expectations Today:
The exchange rate of the US dollar against the Japanese yen (USD/JPY) continued to rise this week with the rise in the US dollar index. Recently, it had risen above the crucial resistance point at 151.94, its swing high in October 2022 and November 2023. Also, this price was the top side of an ascending triangle pattern. Technically, the pair moved above the 50-day Exponential Moving Average (EMA) while the Brilliant Oscillator moved above the neutral point. The Relative Strength Index (RSI) has moved above the overbought level. Therefore, the outlook for the pair is bullish, and the next point to watch will be at the 155 resistances. Ultimately, a drop below the 151-support level will invalidate the bullish outlook.
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