USD/JPY Outlook: Oversized Fed rate cut bets resurface

• Former Fed official Bill Dudley said there was a strong case for a 50 bps rate cut.

• The probability of a 50 bps rate cut increased from 28% to 45%.

• BoJ board member Naoki Tamura noted that the risk of rising inflation is rising.

The USD/JPY outlook shows a free fall in the greenback as markets move to prices with a higher probability of a Fed rate cut next week. At the same time, the yen strengthened as several Bank of Japan policymakers took a more dovish tone.

–Interested in learning more about forex options trading? Check out our detailed guide –

On Thursday, the dollar fell to a fresh low for the year after reports that the Fed could consider a 50 bps rate cut at next week’s meeting. Moreover, former Fed official Bill Dudley said there is a strong case for a 50 bps rate cut. As a result, the probability of a 50 bps rate cut increased from 28% to 45%. Data on Wednesday showed core consumer inflation beat expectations in August. Therefore, market participants raised the likelihood of a 25 bps rate cut, boosting the dollar.

In addition, data on Friday showed that wholesale inflation was higher than expected. Recent data has indicated a gradual pace of rate cuts. However, reports on Friday indicated that policymakers may be considering a larger cut.

Meanwhile, the yen was strong after another policymaker backed more rate hikes. BoJ board member Naoki Tamura noted that the risk of rising inflation is rising. Higher inflation creates the best conditions for the Bank of Japan to raise interest rates.

Key USD/JPY Events Today

Investors are not expecting any key economic reports from the US or Japan. Therefore, the pair could extend the move from Thursday.

USD/JPY Technical Outlook: Bearish momentum is easing near 141.02 support

Technically, the USD/JPY price is on the verge of breaking below the 141.02 support level. The bias is bearish as the price has made a series of lower highs and lows, indicating a downtrend. However, the decline slowed near the key 141.02 level. It is becoming increasingly difficult for price to make lower lows.

–Are you interested in learning about forex robots? Check out our detailed guide –

At the same time, the RSI recorded a bullish divergence, indicating bearish momentum is waning. If this is the end of the road for the bears, the price could bounce higher from 14.02 to challenge the 30-SMA resistance. A break above the SMA would confirm a change in sentiment. On the other hand, if the bears remain in charge, the price will remain below the SMA.

Want to trade forex now? Invest at eToro!

67% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.