US Dollar Forecast: USD/JPY Reverses Ahead of May High

US Dollar Outlook: USD/JPY

USD/JPY reverses ahead of the May high (148.65) to snap the recent series of higher highs and lows, but data prints coming out of the US may influence the exchange rate as the Personal Consumption Expenditure (PCE) Price Index is anticipated to show persistent inflation.

US Dollar Forecast: USD/JPY Reverses Ahead of May High

USD/JPY seems to be unfazed by the semi-annual testimony from Federal Reserve Chairman Jerome Powell as he endorses a wait-and-see approach in front of US lawmakers, with the prepared remarks stating that the central bank is ‘well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.’

US Economic Calendar

It seems as though the Federal Open Market Committee (FOMC) is in no rush to implement lower interest rates as Chairman Powell reiterates that ‘increases in tariffs this year are likely to push up prices and weigh on economic activity,’ and an uptick in the core PCE, the Fed’s preferred gauge for inflation, may keep the central bank on the sidelines as the economy shows little signs of a looming recession.

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In turn, signs of sticky price growth may lead to a bullish reaction in the US Dollar as it curbs speculation for an imminent Fed rate-cut, but a softer-than-expected PCE report may produce headwinds for the Greenback as it raises the Fed’s scope to further unwind its restrictive policy.

With that said, USD/JPY may continue to give back the advance from the monthly low (142.38) as it snaps the bullish price series carried over from last week, but swings in the carry trade may keep the exchange rate within the May range as both the Fed and Bank of Japan (BoJ) keep interest rates on hold.

USD/JPY Price Chart – Daily

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

• USD/JPY falls to a fresh weekly low (144.85) after struggling to close above 147.10 (38.2% Fibonacci retracement), and lack of momentum to hold above the 144.40 (23.6% Fibonacci retracement) to 144.60 (50% Fibonacci extension) region may lead to a test of the monthly low (142.38).
• Failure to defend the May low (142.12) may push USD/JPY toward the 140.50 (61.8% Fibonacci retracement) to 141.50 (38.2% Fibonacci extension) zone, but USD/JPY may trade within a defined range if it holds above the monthly low (142.38).
• Need a move above 145.90 (50% Fibonacci extension) to bring 147.10 (38.2% Fibonacci retracement) back on the radar, with the next area of interest coming in around the May high (148.65).

Additional Market Outlooks

EUR/USD Faces Fed Chair Powell Testimony

GBP/USD Rebound Emerges amid Failure to Close Below 50-Day SMA

USD/CHF Recovery Persists Ahead of SNB Rate Decision

Canadian Dollar Forecast: USD/CAD Reverses Ahead of October Low

--- Written by David Song, Senior Strategist

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