USD Faces Mixed Pressure Amid Varied US Economic Data

The US dollar experienced some initial weakness early last week following the release of the Consumer Price Index (CPI) report, which largely met market expectations. However, subsequent economic indicators painted a more complex picture. The Producer Price Index (PPI) notably exceeded forecasts by a significant margin, while jobless claims continued to improve. Additionally, inflation expectations from the University of Michigan survey surprised on the upside, adding nuance to the inflation outlook.

Despite these mixed signals, the US dollar ended the week essentially unchanged. This stability came as market participants slightly reduced their aggressive dovish expectations for the Federal Reserve’s monetary policy. The soft Non-Farm Payroll (NFP) report had initially fueled speculation of rate cuts, but recent data tempered those views somewhat. Nevertheless, a rate cut in September now appears almost inevitable, barring a strong NFP report that could shift probabilities toward a 50% chance of a cut, though such a scenario would likely dampen expectations for further easing beyond September.

Market Eyes on Fed Chair Powell’s Jackson Hole Speech

Attention has now turned to Federal Reserve Chair Jerome Powell’s upcoming speech at the Jackson Hole Symposium scheduled for Friday. Traders and analysts alike are keen to discern whether Powell will signal any shift in the Fed’s stance. It is widely anticipated, however, that Powell will refrain from making any firm commitments, instead emphasizing that future policy decisions will depend on the comprehensive assessment of incoming data.

Japanese Yen Strengthens on Fed Dovishness

The Japanese yen has gained ground recently, buoyed by expectations of a dovish Federal Reserve. For the yen to appreciate further, the market would likely need to see weaker US economic data that would reinforce bets on Fed easing. Alternatively, stronger inflation figures in Japan could prompt expectations of additional rate hikes by the Bank of Japan, supporting the yen’s value.

Another potential catalyst for yen strength could be increased fiscal stimulus in Japan. Such measures would likely exert upward pressure on inflation, potentially leading to tighter monetary policy and a stronger currency.

USD/JPY Technical Outlook: Daily Chart

On the daily timeframe, USD/JPY remains in a consolidation phase below the 148.50 resistance level. Market participants appear cautious, awaiting fresh catalysts to determine the next directional move. Sellers are expected to defend the 148.50 zone, aiming to push the pair back toward the key trendline near 145.50. Conversely, buyers will be looking for a decisive break above 148.50 to trigger a rally targeting the 151.00 level.

USD/JPY Technical Outlook: 4-Hour Chart

Shorter-term analysis on the 4-hour chart shows similar indecision, with the pair oscillating within a range. Momentum indicators suggest that a breakout in either direction could lead to increased volatility and a clearer trend emerging. Traders should monitor key support and resistance levels closely for signs of a sustained move.