Key points:
The USDJPY pair surged to a fresh high, breaking above ¥146 and marking its third consecutive day of gains. Despite the release of flat inflation data in the form of the Personal Consumption Expenditures (PCE) index, the US dollar continued its upward march against a weaker yen.
Picture: USDJPY rallies as dollar gains fresh momentum over weaker yen, as observed on the VT Markets app.
The USD/JPY pair has seen quite a bit of action since the U.S. Personal Consumption Expenditures (PCE) data for July was released, showing an annualised rate of 2.6%, unchanged from June. Typically, stable inflation would ease pressure on the local currency, but in this instance, the U.S. dollar has continued to gain strength.
In response to the PCE data, the USD/JPY currency pair surged, reaching a high between ¥146.20 and ¥146.50. This rally defies the usual expectation that stable inflation might weaken the dollar, suggesting that other factors are at play.
We believe market participants may be pricing in the possibility of continued U.S. economic resilience or anticipating future Federal Reserve actions that could support the dollar.
Technically, the chart shows the pair maintaining a bullish trend, with the shorter-term moving average staying above the longer-term average, indicating sustained upward momentum. The MACD also reflects positive momentum, although a slight narrowing suggests that the pace of gains might slow down in the near term.
For traders, the focus will remain on how the Federal Reserve interprets this stable inflation data in the context of its broader monetary policy objectives. The USD/JPY pair’s ability to hold above the ¥146 level will be a key indicator of market sentiment going forward.
For short-term traders, the momentum built in USDJPY presents opportunities for trend trading, with the ¥146.50 level being the key area to observe. Should the pair break above this, it could signal further upside potential, with ¥147.00 as the next psychological target.
However, traders should also be cautious of thin liquidity and potential volatility spikes, particularly with the U.S. market closed for Labor Day. Any significant moves could be exacerbated by lower trading volumes, making it essential to monitor any sudden shifts in sentiment.
As the week progresses, attention will shift to upcoming US economic data, which could provide further clues on the Federal Reserve’s policy direction and influence the trajectory of the U.S. dollar against the yen.
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