US Dollar Outlook: USD/JPY
The USD/JPY currency pair has surged to a new monthly high of 154.64, even amidst the Federal Reserve's recent decision to implement a 25 basis point rate cut during its last meeting of 2024. This uptick suggests that the exchange rate might retrace its earlier decline from the November peak at 156.75 while remaining above the crucial 50-Day Simple Moving Average (SMA) currently positioned at 152.33.
USD/JPY Climbs on Fed's Revised Rate Cut Outlook
The USD/JPY pair has broken free from its recent range-bound behavior, driven by new insights from the Fed's Summary of Economic Projections (SEP). The median forecast now indicates the federal funds rate will level out at 3.9% by the close of next year, a notable shift from the previous estimate of 3.4% provided during the September meeting.
The reduced expectations surrounding future rate cuts may bolster the USD/JPY exchange rate, especially as Chairman Jerome Powell notes that the Fed's policy stance has shifted to be "significantly less restrictive." This may open the door for ongoing adjustments in forward guidance as the FOMC takes a more cautious approach to policy rate changes in the coming months.
US Economic Calendar
The upcoming data on the US Personal Consumption Expenditure (PCE) Price Index, which the Fed favors as a measure of inflation, will likely influence foreign exchange trading. Both the headline and core rates are anticipated to show an increase for November.
Should inflation indicators signal persistent price growth, this might trigger a supportive reaction in the USD, as it could compel the FOMC to take stronger measures against inflation. Conversely, a disappointing PCE reading could stifle the recent gains in USD/JPY, prompting the Fed to consider more than two rate cuts in 2025.
USD/JPY Price Chart – Daily
Chart Prepared by Financial Analysts
- The USD/JPY continues its upward movement, rising from the weekly low of 153.16 and trading above 153.80, which is the 23.6% Fibonacci retracement level. The exchange rate appears poised to follow the positive trajectory indicated by the 50-Day SMA at 152.33.
- A breakout over 156.50 (78.6% Fibonacci extension) could signal a retest of the November high at 156.75, with subsequent interest potentially at 160.40, which marks a high point from 1990.
- On the other hand, failing to gather sufficient momentum to exceed the November high may keep USD/JPY trading within a capped range. A drop below 151.95 (notable high from 2022) would shift focus back towards the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone.
Additional Market Insights
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US Dollar Forecast: EUR/USD Attempts to Halt Five-Day Selloff.
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