USDJPY Heads Up As Market Awaits Interest Rate Decision and Inflation Data

Summary:
• The USDJPY air is set to keep rising as investors expect US inflation figures to remain high enough for the Fed to retain current rates.

USDJPY maintained its upward trajectory on Tuesday, gaining 0.21 percent to trade at 157.35. The intraday session saw the pair hit a monthly high of 157.39 before easing lower. The dollar’s renewed vigour is fueled by the scheduled announcement of key economic movers, headlined by the Fed interest rate decision.

The Federal Reserve will announce its interest rate decision on Wednesday, hours after the release on the May Consumer Price Index (CPI) figures. The interest rate is expected to remain unchanged, with the market betting on a 50 percent chance of the first rate cut in September. However, investors will be keen on the Fed’s dot plot, expected to project a 25 basis point raise.

The CPI is expected to show that headline inflation remained unchanged at 3.4 percent in May (YoY), and declined to 0.1 percent from April’s 0.3 percent. The figures could provide some guidance for FOMC members as they weigh the strategy for balancing between a sticky inflation and an economy dragged by high interest rates.

Elsewhere, Japan will be releasing its PPI data later on Tuesday, but the biggest impact is expected to come from Business Sentiment Index (BSI) Large Manufacturing Conditions (Q2), which is a key indicator of the performance of the Japanese economy.  Later in the week, the Bank of Japan will announce its monetary policy decision, but the market expects the current rates to remain in force, with a possible rate hike in July.

Technical analysis

USDJPY pivots at 157.30, with the RSI indicator showing that the buyers are in control. The upside will prevail if the buyers keep the price above that level, with the first resistance likely to come at 157.40. Continued control by the buyers at that point will breach the resistance and potentially push the exchange rate to test 157.50. Alternatively, a move below 157.30 will indicate control by the sellers, with the downside likely to find the first support at 157.21. Extended control by the sellers at that point will break the support, thereby invalidating the upside narration and potentially building the momentum to test 157.07.