Impact of Tokyo Inflation and Possibility of US Fed Rate Cut on USD/JPY Forecast

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As experts in the stock market and trading, we are constantly analyzing market trends and providing valuable insights to help you make informed investment decisions. Today, we are focusing on the USD/JPY intervention zone and how the US inflation numbers could influence the Fed rate path.

US Personal Income and Outlays Report and the Fed in Focus

This Friday, all eyes are on the US Personal Income and Outlays report, which will play a crucial role in determining the prospects of a September Fed rate cut. Economists are anticipating a 2.6% year-on-year rise in the Core PCE Price Index, slightly lower than the April figure of 2.8%.

If the figures come in lower than expected, it might boost confidence in a rate cut. However, a rise in personal income and spending trends could sustain demand-driven inflation, potentially requiring the Fed to maintain a high rate trajectory for a longer period.

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Forecasts indicate that personal income and spending are likely to increase 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 closely monitor FOMC member statements in response to the Personal Income and Outlays Report, as their perspectives on the timing of a Fed rate cut could significantly impact market sentiment. Keep an eye out for speeches by FOMC members Thomas Barkin and Michelle Bowman, which could provide additional insights.

Short-term Forecast: Bearish

The USD/JPY trends are currently influenced by intervention chatter, US inflation data, and Fed speeches. Higher US inflation levels might trigger a Japanese government intervention, with the BoJ potentially cutting JGB purchases more aggressively in July.

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Given these dynamics, the USD/JPY could face significant resistance to the upside. In the event of a Japanese government intervention and the BoJ signaling aggressive cuts in JGB purchases, the USD/JPY could drop to 150.

USD/JPY Price Action

Daily Chart

The USD/JPY is currently trading above the 50-day and 200-day EMAs, confirming bullish price signals. A break above the June 26 high of 160.872 could open the path for a run towards the 162 handle.

Investors should closely monitor interventions, Bank of Japan commentary, and US inflation numbers on Friday. A break below the 160 handle could signal a drop to the 50-day EMA, with potential support at $151.685. The 14-day RSI at 72.28 indicates that the USD/JPY is in overbought territory, signaling a potential increase in selling pressure.

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