USDJPY, EURUSD Outlook: Inflation Reports Ahead of September Policies

Key Inflation Reports:

BOJ Core CPI y/y (Tuesday)
Tokyo Core CPI y/y (Friday)
Eurozone CPI and Core CPI Flash Estimates y/y (Friday)
US Core PCE (Friday)

With the leading inflation reports centered on Friday’s monthly close, the markets are expected to shape their insights into September’s trends and monetary policy decisions.

USDJPY

BOJ Governor Ueda recently reiterated the possibility of further rate hikes if inflation continues to rise, even though the markets may be on shaky ground. This week’s inflation data will be closely monitored for any emerging risks that could prompt another rate hike from the BOJ.

While a significant global carry trade effect is not widely anticipated—given that major speculations have likely already been liquidated—there is still a possibility that a smaller segment of speculators could be affected by further rate hikes. This policy risk remains a key factor to watch from both a USDJPY and broader market perspective.

EURUSD

The EURUSD is currently trading near its July 2023 highs, with the potential to retest the 2023 highs. However, a bearish reversal could be on the horizon if upcoming inflation reports align with the ECB’s target, increasing the probability of a rate cut during the September monetary policy meeting.

US Dollar Index

The magnitude of Fed Chairman Powell’s dovish statement is yet to be confirmed with upcoming economic data ahead of the September meeting. The Fed’s preferred inflation gauge is set for release on Friday, followed by next week’s non-farm payroll reports.

The US Dollar, currently stretched to the downside and aligned with December 2023 lows, is awaiting another confirming push towards the July 2023 lows before a potential bullish reversal.

Technical Outlook

USDJPY Outlook: USDJPY – Daily Time Frame – Log Scale

Source: Tradingview

Following the Bank of Japan's (BOJ) hawkish tone and a slight 0.1% increase in the national core CPI, combined with Fed Chairman Powell’s dovish remarks at the Jackson Hole Symposium signaling the start of an easing monetary policy cycle, the USDJPY is under bearish pressure.

The pair is trading near critical support levels at 143.30 and 141.70, with risks of further decline potentially extending toward July 2023 lows at the 137 level. The 140-139 zone may act as a psychological barrier before deeper moves into the 130s.

From the upside, an unexpected bullish catalyst or overstretched momentum is still expected to drive the trend back towards the trendline connecting the consecutive lows of 2023, near the 149-150.50 zone.

EURUSD Outlook: EURUSD – Daily Time Frame – Log Scale

Source: Tradingview

The EURUSD is trading slightly below the 1.12 psychological barrier, with the Relative Strength Index (RSI) overheated and retesting overbought levels from July 2023. While a reversal could be expected based on market dynamics, a push towards the 2023 highs near the 1.13 barrier is still possible.

The lower end of the 1.10 range, aligned with the upper border of the trendline connecting the consecutive highs of 2023, is expected to provide support if the EURUSD retreats after retesting 2023 highs

. --- Written by Razan Hilal, CMT on X: @Rh_waves

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.