The upcoming US Personal Income and Outlays report will play a significant role in determining the likelihood of a Fed rate cut in September. Economists are expecting the Core PCE Price Index to show a 2.6% year-on-year increase, slightly lower than April’s 2.8%.
If the figures come in lower than expected, it could bolster the case for a rate cut. However, strong personal income and spending trends may sustain demand-driven inflation, potentially necessitating a prolonged period of higher interest rates.
Forecasts indicate that personal income and spending are expected to rise by 0.4% and 0.3%, respectively. In comparison, April saw increases of 0.3% in personal income and 0.2% in spending.
Investors should pay close attention to statements from FOMC members following the release of the report. Their reactions to the data and their views on the timing of a rate cut could sway market sentiment. Additionally, speeches from FOMC members Thomas Barkin and Michelle Bowman could also impact market movements.
The USD/JPY pair’s short-term outlook is bearish, with intervention chatter, US inflation data, and Fed speeches influencing its trends. Higher US inflation could lead to Japanese government intervention, potentially causing the USD/JPY to drop to 150 if the BoJ signals aggressive cuts in JGB purchases.
The USD/JPY is currently trading above the 50-day and 200-day EMAs, signaling a bullish trend. A break above the recent high of 160.872 could push the pair towards the 162 level. However, a break below 160 could lead to a drop to the 50-day EMA and potentially the $151.685 support level.
The 14-day RSI is at 72.28, indicating that the USD/JPY is in overbought territory. Selling pressure may increase if the pair fails to break above the June 26 high of 160.872. Investors should keep a close eye on interventions, Bank of Japan commentary, and US inflation numbers for potential market-moving developments.