Stronger-than-expected data releases could impact investor expectations regarding a potential Fed rate cut in September. An increase in business confidence may lead to higher business investment and job creation, while tight labor market conditions in the US could result in higher wages and disposable income. This rise in disposable income could drive consumer spending and demand-led inflation.
However, investors may be cautious in taking positions, with the upcoming US CPI Report and FOMC interest rate decision. It is anticipated that the Fed will maintain interest rates at their current levels on Wednesday. Nevertheless, if US inflation figures exceed expectations, it could influence the FOMC’s economic outlook.
In the short term, the USD/JPY trends will be influenced by the US CPI Report, the Fed, and the Bank of Japan. A positive FOMC economic outlook may favor the US dollar, potentially leading to speculation about a rate hike by the Bank of Japan to strengthen the Japanese Yen. This could result in a volatile second half of the week for the USD/JPY pair.
Looking at the USD/JPY price action, the currency pair is currently trading above the 50-day and 200-day EMAs, indicating a bullish trend. A breakout above 157.5 could see the USD/JPY reaching the 158 level and potentially targeting the April 29 high of 160.209. Factors such as Japan machine tool orders, Bank of Japan announcements, and US economic indicators should be taken into account.
On the other hand, a drop below the 156 level could lead to a test of the 50-day EMA, followed by the 151.685 support level. The 14-day RSI at 56.44 suggests that the USD/JPY may climb towards the April 29 high before potentially entering overbought territory.