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The latest guidance contrasted with speculation of a possible move away from negative interest rates. Market expectations of the BoJ raising its inflation forecasts previously fueled bets on a BoJ move away from negative interest rates.
While investors pair bets on a near-term BoJ policy tweak, the Middle East conflict remains a consideration. An escalation in the conflict would fuel a flight to the safety of the Japanese Yen.
There are no economic indicators from Japan for investors to consider. The lack of stats will leave the USD/JPY in the hands of BoJ chatter and updates from the Middle East.
Chicago Fed National Activity Index in Focus
Later today, the Chicago Fed National Activity Index (CFNAI) will garner investor attention. Better-than-expected numbers may support bets on a December Fed rate hike. Economists forecast the CFNAI to increase from -0.16 to 0.05 in September.
Notably, the Index considers 85 monthly US economic indicators, giving investors a bird’s-eye view of the US economy. Beyond the headline figure, employment and consumption figures need consideration.
Tighter labor market conditions and a pickup in consumption would fuel demand-driven inflationary pressures. Demand-driven inflationary pressures may force the Fed to hike rates to curb spending. Higher interest rates can affect borrowing costs and reduce disposable income. A downward trend in disposable incomes may lead to consumers curbing spending on non-essential items.
The USD/JPY may show increased sensitivity to the report. This week’s US economic calendar could dictate the fate of the December Fed interest rate decision. Service Sector PMI (Tues), GDP (Thurs), and Core PCE Price Index (Fri) numbers will influence bets on a Fed rate hike.
Short-term Forecast
The BoJ commitment to an ultra-loose monetary policy stance tilts monetary policy divergence toward the US dollar. While the markets expect the Fed to leave rates unchanged in November, the possibility of a December rate hike lingers. US economic indicators will likely dictate near-term USD/JPY trends, with 150 a significant resistance level.
USD/JPY Price Action
Daily Chart
The USD/JPY sat above the 50-day and 200-day EMAs, affirming bullish price signals. A USD/JPY break above 150 would support a breakout from the 150.293 resistance level to target 151.
News updates from the Middle East and US economic indicators will be focal points on Monday.
An escalation in the Middle East conflict and a weaker-than-expected CFNAI would test the buying appetite for the USD/JPY. A break below the 148.405 support level would give the bears a run at the 50-day EMA.
The 14-day RSI at 60.96 suggests a USD/JPY break above the 150.293 resistance level before entering overbought territory.
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