USD/JPY Pulls Back Ahead of Monthly High to Halt Three-Day Rally

US Dollar Outlook: USD/JPY

USD/JPY pulls back ahead of the monthly high (155.89) to snaps the recent series of higher highs and lows, and the exchange rate may trade within the opening range for February should it consolidate over the remainder of the week.

USD/JPY Pulls Back Ahead of Monthly High to Halt Three-Day Rally

USD/JPY appears to be unfazed by the unexpected uptick in the US Producer Price Index (PPI) as it halts a three-day rally, and the exchange rate may continue to give back the rebound from the monthly low (150.93) even as Federal Reserve Chairman Jerome Powell tells US lawmakers that ‘we do not need to be in a hurry to adjust our policy stance.’

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Nevertheless, data prints coming out of the US may keep the Federal Open Market Committee (FOMC) on the sidelines as the PPI climbs to 3.5% in January from 3.3% the month prior, with the core rate reflecting a similar behavior as it crossed the wires at 3.6% versus forecasts for a 3.3% print.

US Economic Calendar

As a result, the Fed may keep US interest rates on hold at its next meeting in March, but the update to the US Retail Sales report may push the central bank to further unwind its restrictive policy as household spending is expected to contract 0.1% in January.

In turn, signs of a slowing economy may keep USD/JPY under pressure as it fuels speculation for an imminent Fed rate-cut, but a better-than-expected Retail Sales report may generate a bullish reaction in the Greenback as it instills an improved outlook for the US economy.

With that said, the pullback in USD/JPY may turn out to be temporary as the Fed pauses its rate-cutting cycle, but the exchange rate may struggle to retain the rebound from the monthly low (150.93) as it snaps the recent series of higher highs and lows.

USD/JPY Price Chart – Daily

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

USD/JPY gives back the advance from the start of the week as it pulls back ahead of the monthly high (155.89), and a move below 151.95 (2022 high) may push the exchange rate towards the monthly low (150.93).
Next area of interest comes in around the December low (148.65), with a break/close below the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone opening up the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) region.
At the same time, USD/JPY may track sideways should it hold within the opening range for February but need a move back above 153.80 (23.6% Fibonacci retracement) bringing the monthly high (155.89) on the radar.

Additional Market Outlooks

AUD/USD Eyes January High Ahead of RBA Rate Decision

Gold Price Forecast: RSI Still Sits in Overbought Territory

GBP/USD Halts Selloff to Carve Bullish Engulfing Candlestick

EUR/USD Recovers as Chair Powell Remains Willing to Adjust Policy

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

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