USDJPY Extends Gains On Declining Bets On High Fed Interest Rate Cuts

Summary:
• USDJPY is propelled upwards by the dollar's rising appeal as it becomes likely that a much-anticipated September rate cut may not be as big.

USDJPY continued its uptrend on the daily chart on Monday, rising by 0.6 percent to trade at 147.56 at 11.20 UTC.  The dollar has recently received support from diminishing bets on a 50 basis points cut in September. Just 46 percent of traders expect a 50 basis points cut next month, down from 74 percent a week ago, as per the CME FedWatch tool.  However, that figure could change this week when two key inflation readings come out.  

First up will be the July Producer Price Index (PPI) data set for release on Tuesday. Thereafter, the more impactful Consumer Price Index (CPI) will weigh in and provide a wider perspective into the Fed’s likely extent of cuts. Meanwhile, FOMC member Michelle Bowman stated on Sunday that inflation still carried risk despite recent data showing a decline. This has injected hawkishness around the dollar, and will provide support for USDJPY in the near-term. Meanwhile, geopolitical tensions in the Middle East and Ukraine’s incursion into Russia could add fuel for the dollar to extend gains against the yen.

USDJPY momentum indicators

The 4-hour chart supports continuation of the upside on the USDJPY pair. The exchange rate is currently above both the 20 and 50 Simple Moving Averages (SMA). In addition, the 20-SMA is just about to cross above the 50-SMA, signaling that control by the buyers is getting stronger. Also, the RSI momentum indicator is at 55, underlining the stronger upside momentum.

Support and resistance levels

The 30-minute chart suggests a likely continuation of the upside if USDJPY stays above 147.42. That will likely be met with the first resistance at 147.67. However, a stronger upside momentum could break above that mark and potentially push the next target to 147.89. On the other hand, movement below 147.42 will favour the sellers to take control. In that case, the first support will likely be at 146.20. However, extended control by the sellers could breach that mark and, therefore, invalidate the upside view. Also, it could extend the downside to test 147.00.