US Dollar Forecast: USD/JPY Rebound Retrained by Slowdown in US PCE

US Dollar Outlook: USD/JPY

USD/JPY pulls back from a fresh weekly high (150.95) as the US Personal Consumption Expenditure (PCE) Price Index reflects slowing inflation, and the recent rebound in the exchange rate may turn out to be temporary amid the failed attempt to defend the December low (148.65).

US Dollar Forecast: USD/JPY Rebound Retrained by Slowdown in US PCE

USD/JPY may struggle to retain the rebound from the February low (148.57) as the core PCE, the Federal Reserve’s preferred gauge for inflation, narrows to 2.6% in January form 2.9% per annum the month prior, and expectations for a further shift in US monetary policy may continue to influence the carry trade as the Fed pursues a neutral stance.

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In turn, the US Dollar may face headwinds ahead of the next Federal Open Market Committee (FOMC) rate decision on March 19 as signs of slower price growth fuels for a looming rate-cut, and it remains to be seen if the central bank will adjust its forward guidance as Chairman Jerome Powell and Co. are slated to update the Summary of Economic Projections (SEP).

Until then, swings in the carry trade may sway USD/JPY as it appears to be unfazed by the ongoing change in US trade policy, and the exchange rate may move to the beat of its own drum as the Bank of Japan (BoJ) acknowledges that ‘if the outlook for economic activity and prices presented in the January Outlook Report will be realized, the Bank will accordingly continue to raise the policy interest rate and adjust the degree of monetary.’

With that said, the opening range for March is in focus for USD/JPY amid the failed attempt to defend the December low (148.65), but the exchange rate may stage a larger rebound over the coming days as it breaks out of the range bound price action from earlier this week.

USD/JPY Price Chart – Daily

Chart Prepared by David Song, Senior Strategist; USD/JPY on TradingView

• USD/JPY carves a series of higher highs and lows amid the lack of momentum to close below the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone, with the Relative strength Index (RSI) reversing ahead of oversold territory amid the rebound in the exchange rate.
• A move above 151.95 (2022 high) brings 153.80 (23.6% Fibonacci retracement) on the radar, with the next area of interest coming in around the February high (155.89).
• At the same time, a close below the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone opens up the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) region, with the next area of interest coming in around the October low (142.97).

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--- Written by David Song, Senior Strategist

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