For four trading sessions in a row, the bulls failed to push the USD/JPY currency pair to more than the 135.58 resistance level. The US dollar pairs await the announcement of US inflation figures, which have a strong reaction to the future expectations of raising US interest rates in the remainder of the year 2022. The dollar-yen pair is stabilizing around the 135.10 level at the time of writing the analysis.

The US Labor Department will release its July consumer price report on Wednesday, followed by its producer price report on Thursday. Investors and economists will be looking for any signs that sharp US interest rate increases by the Federal Reserve in the past few months have helped to control inflation.

For its part, the Federal Reserve has raised US interest rates four times this year in an attempt to rein in the economy and cool the hottest inflation in four decades. Wall Street markets are concerned that the central bank could slam the brakes too hard and push the economy into recession. Last week’s strong US jobs report had most economists expect the Federal Reserve to raise short-term interest rates again by another three-quarters of a point at its September meeting.

USD/JPY Economic Outlook

Most economic data is already pointing to a slowdown. The US economy has now contracted for two consecutive quarters, which is an unofficial indicator of recession. But recession fears were eased by a hot jobs market as US unemployment fell to its historic lows. While this is good for the economy, it is a sign of persistent inflation.

What else is currently affecting the markets?

The fighting in Ukraine and the attacks on Europe’s largest nuclear plant are other factors hanging over the markets. Moscow and Kiev have accused each other of bombing a nuclear power plant in the Russian-occupied southeast of Ukraine, attacks that have raised international concern. The Zaporizhzhia Nuclear Power Plant has six nuclear reactors, and the fighting around them has increased the risk of a nuclear accident.

Forecast of the US dollar against the yen:

• The performance of the USD/JPY currency pair may remain stable around its recent gains until the US inflation figures are announced.
• This completes the picture for the US economy and the path of raising US interest rates.
• Currently, the nearest resistance levels for the dollar pair are 135.85, 136.20 and 137.00, respectively.
• A break of the support level 132.25 will be important for the bears to dominate.
• The general trend of the dollar-yen is still bullish.

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The EUR/USD pair experienced near and far setbacks during last week’s trading, but the risk of a long-term rise in US government bond yields would threaten to push it to July lows if US inflation figures further tighten the Fed. With the start of this week’s trading, the EUR/USD pair settled in tight surroundings between the level of 1.0160 and the level of 1.0222 and settled around the level of 1.0190 in the beginning of trading today, Tuesday.

During last week’s trading, the Euro-dollar approached the resistance 1.0300, but its attempts to recover were halted again due to the seemingly increasing risks to energy supplies in Germany and some other European countries. But the Russian government’s continued attempt to use gas supplies to force it out of European sanctions over its war in Ukraine aborted the euro’s early attempt to recover last week and could remain a headwind for the single European currency in the coming days.

Influencing Factors:

 Jordan Rochester, Nomura Strategist says. Electricity prices in Europe are setting new record highs this week, and while it’s strange that this alone didn’t push the EUR/USD lower, it’s only a matter of time, in our view. This week, a drought in Germany may cause the water level on the Rhine to drop below 40 cm (the shallower part of the central part of the river), making the river almost impassable for cargo,” he added. “About 30% of the coal is transported Germany’s iron ore and natural gas are along the river, with drought levels in 2018 dropping 0.4-0.7% of 2018 GDP. If this happens, Rochester and colleagues warned Friday, it would add further delays in the supply chain, but also make production Coal electricity is more difficult at a time when Germany is trying to move away from Russian gas.”

It wasn’t just energy supply risks that weighed on the euro’s ankles, as the message coming from the latest US economic data was also a mounting headwind after reviving a previously stalled rally in US bond yields and the dollar last week. It comes after the Institute for Supply Management’s Purchasing Managers’ Index (ISM) surveys of the US manufacturing and services sectors rose for July in contrast to their more dismal peers in Standard & Poor’s Global, which suggested late last month that the all-important services sector contracted in July.

Meanwhile, last Friday’s US non-farm payrolls report offered an open mockery of the notion that the US economy may be close to recession and was most notable for the strong increase in average hourly wage growth, which could have implications for the Fed’s policy outlook.

Pooja Sriram, an economist at Barclays, wrote in a research briefing Friday: “Along with signs of a weak labor supply, risks to sustained wages and inflationary pressures appear to be rising.”

After the strong July employment report, a 75 basis point rise at the September FOMC meeting is still on the table, with the potential to lift that volume. However, we maintain our baseline forecast for a 50bp rise, given that the Fed will have a wide range of data to consider in the extended meeting period (~7 weeks), including the print of July CPI this week and a set other data from employment and consumer price index in September”.

In general, the dollar has fallen with the euro benefiting since mid-July after a series of bad economic data that indicated that the US economy is slowing down faster than expected by the Federal Reserve, which also indicated late last month that it is likely to slow the pace of rate hikes.

Economic data released last week raised expectations about the Federal Reserve’s interest rate in September and gave a new lease of life to US bond yields and the dollar, which could rise further in the coming days if Wednesday’s US inflation numbers provide more incitement to Fed hawks.

Forecast for EUR/USD:

On the daily chart below, the EUR/USD is in a neutral position with a bearish bias, and a break of the 1.0130 support over the same time period will bring the bears enough momentum to move below the parity price and more. On the upside, moving towards the 1.0330 and 1.0400 resistance levels will be important for the upside trend to hold and in general I still prefer to sell EURUSD from every upside level.

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The stability around the highest levels in 20 years still characterizes the performance of the currency pair USD/JPY characterizes the performance of the currency pair for two consecutive weeks. The psychological top 130.00 still characterizes the dominance of the bulls. The US dollar is still the strongest against the rest of the other major currencies, supported by the expectations of raising US interest rates strongly during the year 2022 to contain the highest US inflation in 40 years. In return, the Central Bank of Japan provides more stimulus to the Japanese economy, which is suffering from the consequences of the epidemic and the Russian / Ukrainian war.

On the other hand, inflation of just 2% – relatively low in the current global wave of income-eroding price hikes – is likely to be enough to turn the real earnings of Japanese workers into negative, according to Oxford Economics.

Norihiro Yamaguchi, chief economist at Oxford, expects Japanese consumer prices to rise 1.7% this year, close to the Bank of Japan’s target of 2%. While this is more moderate than in many other economies, he said in a research note, real income in Japan will decline faster than in France, Australia, and other Asian countries due to modest gains in nominal income.

“The continued stagnation in the labor market in terms of working hours will affect the wages of part-time workers,” Yamaguchi added. And “for regular workers, traditional spring negotiations are likely to settle at a level that provides limited monthly wage increases throughout 2022.”

With working hours stagnating, labor market conditions in Japan are becoming more resilient than suggested by a 2.6% drop in the unemployment rate, Yamaguchi said. While inflation in Japan is quieter than elsewhere, households still face a steep rise in the cost of living from the fastest gains in energy prices in decades. Weak wages are a major reason why the central bank has committed to strict monetary easing in an effort to put the economy on a more sustainable recovery path.

About 3,300 unions in Japan achieved a 2.1% increase in average monthly wages in this year’s wage negotiations, according to Rengo, the largest trade union umbrella organization. Yamaguchi added that as smaller companies are added to the tally, the rise is likely to be curtailed somewhat. This week’s data showed Japan’s real wages fell 0.2% in March, the first decline in three months, as inflation weighed on household incomes. This is expected to affect consumption, which began to recover after virus restrictions were removed in late March.

According to the technical analysis of the pair: Today, the US dollar pairs are awaiting the announcement of US inflation figures, which will have a reaction to the expectations of raising US interest rates. In general, there is no change in my technical view of the price performance of the USD/JPY currency pair, as the general trend is still bullish and the psychological top of 130.00 is a culmination of the extent to which the bulls control the trend. Forex investors do not care about technical indicators reaching overbought levels after the pair’s recent gains. Continuing factors of the dollar’s strength, especially the future tightening of the US Federal Reserve’s policy, will remain an important factor for the bulls.

Currently, the best selling is waiting for profit taking operations from the resistance levels 131.30 and 132.20, respectively. On the other hand, it broke the support 128.00, a first penetration for the current upward trend.

Amidst a sharp upward momentum, the price of the US dollar against the Japanese yen (USD/JPY) currency pair is receiving the announcement of US inflation figures today. The currency pair is stable around the 125.55 resistance level at the time of writing the analysis. At the beginning of this week’s trading, it moved towards the 125.77 resistance level, the highest for the currency pair in six years. US inflation figures still support expectations of more chances to raise US interest rates throughout 2022.

Federal Reserve officials raised US interest rates by a quarter point last month to a target range of 0.25% to 0.5% and indicated they expect to raise rates to 1.9% by the end of 2022 and 2.8% by the end of next year, according to their median forecast. Since then, officials have said they are open to moving faster if necessary, to cool the biggest inflation in four decades, including by raising half a point at their May 3-4 meeting. The minutes of the March Fed meeting showed that many had preferred to go that far last month but had opted for a cautious quarter-point increase in light of the Russian invasion of Ukraine and were open to a half-point rate hike at one point or more meetings. In the future.

According to the technical analysis of the pair: The general trend of the USD/JPY currency pair is still bullish. Investors do not care about the arrival of technical indicators on the impact of these gains to strong overbought levels. The path is completed, as the discrepancy in economic performance and the future of monetary policy is what Between Japan and the United States is still in favor of a stronger US dollar. The closest targets for the bulls are currently 126.20 and 127.00, bearing in mind that stopping the dollar’s momentum may mean activating strong profit-taking.

According to the performance on the daily chart, bears move the dollar-yen pair below 120.00 to start changing its current upward direction.