US Services PMI Data to Spotlight the US Dollar

While Japan’s Services PMI data supported bets on a BoJ rate hike, US Services PMI data will likely influence the Fed’s post-December rate path.

Economists forecast the ISM Services PMI to fall from 52.4 in October to 52.1 in November. A sharper drop in the headline PMI would signal a loss of economic momentum, given that services account for around 80% of US GDP. However, traders should also consider employment and price trends. Slower sector activity, rising job cuts, and higher prices may revive stagflation jitters and challenge bets on post-December Fed rate cuts.

Rising stagflation risks and a hawkish BoJ rate path align with my short- to medium-term outlook for USD/JPY.

Crucially, there are no FOMC member speeches to influence sentiment, with the Fed Blackout Period in effect until December 11, limiting Fed-driven volatility.

According to the CME FedWatch Tool, the chances of a December cut stand at 89.2% on December 2, up from 86.4% on December 1. Meanwhile, the probability of a January rate cut edged up from 23.0% to 25.7%. Sentiment toward first-quarter rate cuts will be key, given that markets are expecting BoJ and Fed policy adjustments in December.

Technical Outlook: USD/JPY on a Downward Trajectory

Looking at the daily chart, USD/JPY traded above the 50-day and 200-day Exponential Moving Averages (EMAs), affirming a bullish bias. However, fundamentals have begun to shift from the technical trend, supporting a bearish outlook.

A drop below the 155 support level would open the door to testing the 50-day EMA. If breached, the 153 support level would be the next key support. Crucially, a break below the 50-day EMA would indicate a bearish trend reversal, suggesting a near-term fall toward 150.