USD/JPY Forecast: Bullish optimism fades ahead of CPI data

• The bullish trend for USD/JPY continued at a slower pace.

• Market participants cut bets on a 50bp Fed rate cut in November.

• Economists expect inflation to fall from 2.5% to 2.3%.

The USD/JPY forecast shows dark clouds gathering from the recent uptrend as market participants await the all-important US CPI report. However, after rallying on expectations of a Fed rate cut, the dollar was near a ten-week high against the yen.

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USD/JPY’s bullish trend continued at a slower pace ahead of crucial US inflation data. Initially, solid growth followed data showing a resilient labor market. The US nonfarm payrolls report showed an unexpected pick-up in job growth in September. At the same time, unemployment fell. As a result, market participants reduced bets for a 50bp Fed rate cut in November.

Ahead of the jobs report, Powell had changed his tone to one of mild shock. He hinted at two more quarter-point rate cuts in 2024. However, before that, policymakers were fairly accommodative, leading to September’s massive rate cut. As a result, the minutes of the FOMC meeting showed agreement with the super-sized rate cut. However, it was outdone because it came well before the successful jobs report.

Market participants are currently pricing in an 85% chance of a 25bps rate cut in November. However, this outlook could change further with the upcoming US CPI report. Economists expect inflation to fall from 2.5% to 2.3%. Meanwhile, the monthly figure could rise 0.1 percent after a 0.2 percent increase in August. The outlook for Fed rate cuts could change significantly if inflation rises well above estimates. On the other hand, easing price pressures will support another rate cut in November.

Key USD/JPY Events Today

• US core CPI m/m
• US CPI m/m
• US CPI y/y
• US Jobless Claims

USD/JPY Technical Forecast: RSI signals waning bullish enthusiasm

Technically, the price of USD/JPY rose to a new high. It is trading well above the 30-SMA with RSI above 50, supporting a bullish bias. However, price action has moved from massive green candles to mall candles. This could indicate bearish strength for the bulls.

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At the same time, the RSI made a bearish divergence with the price, showing bearish momentum. Therefore, the bears could be ready to take over. If the price breaks below the bullish trendline, it could drop to the 30-SMA or below. Otherwise, the bulls could continue to make higher highs.

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