Today's interest is dominated by the Bank of Japan's policy rate meeting and the US Core Price Index. At the same time, the USDJPY currency pair is setting new all-time highs for 2024 while the Dollar Index is weakening.
It is essential to keep a keen eye on market demand and supply dynamics while staying informed about economic events and geopolitical developments.
Overview
Today's interest is dominated by the Bank of Japan's policy rate meeting and the US Core Price Index. At the same time, the USDJPY currency pair is setting new all-time highs for 2024 while the Dollar Index is weakening.
It is essential to keep a keen eye on market demand and supply dynamics while staying informed about economic events and geopolitical developments.
High Impact Economic Events
Friday, Tentative: BOJ Policy Rate(JPY)
Friday, 03:30 pm (GMT+0): Core PCE Price Index m/m (USD)
Fundamentals
Data released yesterday revealed that the core inflation in Japan's economy decelerated more than expected in April and dropped below the central bank's target of 2 percent.
The Bank of Japan's two-day policy meeting is set to conclude today, after which the board will keep interest rates steady and produce fresh quarterly inflation projections through early 2027.
Investors will also pay attention to the US Personal Income and Expenditure Report later in the Friday session, hoping for a hint of Fed rate cuts in 2024.
Economists predict that personal income and spending will rise by 0.5% and 0.6%, respectively, in March. Additionally, the year-on-year Core PCE Price Index is expected to increase by 2.6%.
Technical Analysis
The USDJPY exchange rate has been surging since December 28, 2023, after the formation of a Hammer reversal pattern. The pattern appeared when the price bounced back from its twenty-two-week low of 140.249. The Hammer is a bullish pattern in technical analysis, a Japanese candlestick formation that indicates a potential trend reversal from a bearish to a bullish trend. The USDJPY continued to rise, as shown by the successive higher peaks and troughs on the price chart. Consequently, the exchange rates rallied, and on April 26, the currency pair reached its highest point of the year at 156.183. However, the presence of a negative divergence between the price and the Momentum oscillator alerts for an impending exhaustion of the bullish momentum. Both the Relative Strength Index (RSI) and the Momentum oscillator hover above the overbought zone.
The bullish outlook is supported by the 50-period Moving Average,the Momentum Oscillator and the RSI. The price is currently trading above the Moving Average line, indicating an upward trend, the Momentum Oscillator has moved above its 100 baseline level, and the RSI is above the 70 level supporting the bullish scenario.
Upside Potential Targets
If the bulls manage to maintain control of the market, traders may consider the following targets:
157.133: The first target corresponds to the R3 weekly Pivot Point estimated using the standard methodology.
157.901: The second target aligns with the 261.8 percent Fibonacci Extension of the weekly swing marked by the peak at 150.881 and the trough at 146.483.
158.034: The third target is 158.034, matching the 261.8% Fibonacci Extension drawn from the swing high of 150.881 down to the swing low of 146.479.
Downside Potential Targets
Should the bears manage to dominate the market, there are four potential downside targets that traders may consider:
155.302: The first support stands at 155.302, aligning with the R1 weekly Pivot Point calculated using the standard method.
154.128: The second support is estimated at 154.128, representing the weekly Pivot Point.
152.482: An additional potential support could be identified at 152.482, representing 38.2 percent of the Fibonacci Retracement drawn from the trough at 146.479 to the high of 156.217.
151.971: The fourth potential support is observed at the peak marked on March 27.
Conclusion
The Bank of Japan's (BOJ) decision to raise interest rates is influenced by the current state of the yen's value, which poses a challenge. While the weakening yen boosts exports and triggers an inflationary effect, it could affect consumption by slowing economic growth.
The US PCE price index for March is anticipated to display a mixed picture of inflation tendencies. This could potentially strengthen the Federal Reserve's determination to abstain from increasing interest rates.