USD/JPY Defends Post-NFP Reaction with CPI Report in Focus

US Dollar Outlook: USD/JPY

USD/JPY appears to be defending the advance following the better-than-expected US Non-Farm Payrolls (NFP) report as it bounces back from a fresh weekly low (147.35), but the exchange rate may face range bound conditions if it struggles to test the August high (150.89).

USD/JPY Defends Post-NFP Reaction with CPI Report in Focus

Keep in mind, USD/JPY pushed above the September high (147.21) after showing a limited response to the negative slope in the 50-Day SMA (145.08), and developments coming out of the US may continue to sway the exchange rate as the Federal Reserve prepares to further unwind its restrictive policy.

Recent remarks from Fed Governor Adriana Kugler suggest the Federal Open Market Committee (FOMC) will continue to shift gears as she supports ‘a balanced approach to the FOMC's dual mandate,’ with the official going into say that ‘if progress on inflation continues as I expect, I will support additional cuts in the federal funds rate to move toward a more neutral policy stance over time.’

US Economic Calendar

In turn, the update to the US Consumer Price Index (CPI) may push the FOMC to achieve a neutral policy sooner rather than later as the headline reading is expected to narrow to 2.3% in September from 2.5% per annum the month prior.

Signs of easing inflation may drag on the US Dollar as it encourages the Fed to deliver another 50bp rate cut at its next interest rate decision on November 7, but evidence of persistent price growth may put pressure on Chairman Jerome Powell and Co. to adopt a more gradual approach as the core CPI is seen holding steady at 3.2% during the same period.

With that said, USD/JPY may stage a larger recovery in light of the limited response to the negative slope in the 50-Day SMA (145.08), but the exchange rate may struggle to retain the advance from the previous week if it fails to test the August high (150.89).

USD/JPY Price Chart – Daily

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

• USD/JPY cleared the September high (147.21) after closing above the 50-Day SMA (145.08) for the first time in July, with a push above the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) region raising the scope for a test of the August high (150.89).
• Next area of interest comes in around the 2022 high (151.95) but USD/JPY may face range bound conditions should it struggles to push/close above the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) region.
• Failure to hold above the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) zone may push USD/JPY back towards the monthly low (142.92), with the next area of interest coming in around 140.50 (61.8% Fibonacci retracement) to 141.50 (38.2% Fibonacci extension).

Additional Market Outlooks

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--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong