The recent comments by FOMC members Michael Barr and Raphael Bostic have added to the uncertainty surrounding the possibility of a Fed rate cut in September. While some Fed speakers are hesitant to support a rate cut until there is more confidence in inflation returning to target levels, market expectations still lean towards a rate cut. This has led to fluctuations in the chances of the Fed leaving interest rates unchanged in September, as indicated by the CME FedWatch Tool.
The USD/JPY exchange rate has been particularly sensitive to central bank chatter and expectations of a Fed rate cut. The upcoming release of preliminary Services PMIs on Thursday will also play a significant role in determining near-term trends for the currency pair. A hawkish Fed commentary could strengthen buyer appetite for the USD/JPY, while weaker US service sector activity may push the Fed towards a more dovish interest rate trajectory.
From a technical standpoint, the USD/JPY has been displaying bullish price signals, with the currency pair hovering above both the 50-day and 200-day EMAs. A breakout above the 157 handle could pave the way for a move towards the 158 handle, with the potential to reach the April 29 high of 160.209. On the other hand, a drop below the 155 handle could give the bears momentum to test the 50-day EMA, signaling a potential move towards the 151.685 support level. The current 14-day RSI suggests a possible return to the April 29 high of 160.209 before entering overbought territory.
The recent Fed comments have introduced uncertainty into the market regarding the possibility of a rate cut in September. This uncertainty has had a noticeable impact on the USD/JPY exchange rate, with market participants closely monitoring central bank chatter and economic indicators for guidance. Technical analysis of the USD/JPY suggests a potential for further bullish momentum, but with key support and resistance levels to be mindful of in the coming days.
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