How will the US inflation numbers influence the Fed rate path?

US Personal Income and Outlays Report and the Fed in Focus

On Friday, the US Personal Income and Outlays report is crucial for September Fed rate cut prospects. Economists expect the Core PCE Price Index to rise 2.6% year-on-year, down from 2.8% in April.

Lower-than-expected figures could boost confidence in a rate cut, though higher personal income and spending trends could sustain demand-driven inflation, potentially requiring a prolonged high rate trajectory.

Forecasts suggest personal income and spending will climb by 0.4% and 0.3%, respectively. For context, April saw increases of 0.3% in personal income and 0.2% in spending.

With inflation taking center stage, investors should monitor FOMC member statements. Responses to the Personal Income and Outlays Report and perspectives on the timing of a Fed rate cut could sway market sentiment.

FOMC members Thomas Barkin and Michelle Bowman are on the calendar to speak, adding the potential for market-moving commentary.

Short-term Forecast: Bearish

USD/JPY trends hinge on intervention chatter, US inflation data, and Fed speeches. Higher US inflation could prompt a Japanese government intervention, with the BoJ possibly cutting JGB purchases more aggressively in July.

Considering the dynamics, the USD/JPY could face stern resistance to the upside. The USD/JPY could drop to 150 if the Japanese government intervenes and the BoJ signals plans to aggressively cut JGB purchases.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered comfortably above the 50-day and 200-day EMAs, affirming the bullish price signals.

A break above the Wednesday, June 26, high of 160.872 could give the bulls a run at the 162 handle.

Interventions, Bank of Japan commentary, and US inflation numbers require investor attention on Friday.

Conversely, a USD/JPY break below the 160 handle could signal a drop to the 50-day EMA. A fall through the 50-day EMA could bring the $151.685 support level into play.

The 14-day RSI at 72.28 shows a USD/JPY in overbought territory. Selling pressure could intensify at the June 26 high of 160.872.