Investors should listen to upcoming speeches from FOMC members Michael Barr, Patrick Harker, Loretta Mester, and Raphael Bostic. Views on the latest CPI report and potential timing for a Fed rate cut could move the dial.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on GDP numbers from Japan, US labor market data, and FOMC member chatter. Weaker-than-expected labor market data and support for a September Fed rate cut could further affect buyer demand for the USD/JPY. However, the contraction in the Japanese economy could leave interest rate differentials firmly favoring the US dollar.

USD/JPY Price Action

Daily Chart

The USD/JPY held above the 50-day and 200-day EMAs, sending bullish price trends.

A USD/JPY return to the 155 handle could support a move toward the 156 handle. A breakout from 156 would bring the April 29 high of 160.209 into view.

On Thursday, the Bank of Japan, US economic data, and FOMC member reaction to the US CPI Report need consideration.

Alternatively, a USD/JPY fall through the 50-day EMA could signal a drop toward the 151.685 support level.

The 14-day RSI at 48.73 suggests a USD/JPY fall to the 151.685 support level before entering oversold territory.

• EUR/USD rose to five-week highs near 1.0900.
• The US Dollar sold-off in the wake of a weaker US CPI.
• US headline CPI rose by 3.4% YoY in April.

The ongoing negativity surrounding the US Dollar (USD) spurred yet another positive response in EUR/USD, this time lifting it to surpass five-week highs near the 1.0900 barrier on Wednesday.

The intense decline in the Dollar coincided with a generally negative session in US yields across various durations, all exacerbated after US inflation data tracked by the CPI showed another downtick in consumer prices in April.

This scenario continues to anticipate the Federal Reserve (Fed) embarking on its easing cycle in September, in contrast to a potential earlier onset of interest rate cuts by the European Central Bank (ECB), likely in June.

Regarding the latter, the CME Group’s FedWatch Tool indicates a 70% probability of lower interest rates in the US by September.

This idea was reinforced after Federal Reserve Chief Jerome Powell expressed his expectation of US inflation continuing to decrease through 2024, echoing last year’s trend. He also indicated that it seemed unlikely for the Fed to implement further interest rate hikes.

Somewhat in contrast to Powell’s views, Minneapolis Federal Reserve Bank President Neel Kashkari reiterated on Wednesday his uncertainty regarding the level of restrictiveness in current monetary policy. He emphasized that borrowing costs “probably need to remain at their current level for a while” as US central bankers assess inflation.

Meanwhile, the unchanged monetary policy landscape underscores the divergence between the Federal Reserve and other G10 central banks, particularly the European Central Bank (ECB).

Regarding the ECB, recent statements from policymakers have suggested an increasing likelihood of the bank initiating its easing process in June, although uncertainties remain about the ECB’s future decisions beyond the summer. In this regard, de Guindos mentioned earlier on Thursday that the ECB exercises caution in predicting any trends beyond June.

Looking ahead, the relatively subdued economic fundamentals in the Eurozone, combined with the resilience of the US economy, support the ongoing Fed-ECB policy divergence narrative and favour a stronger Dollar in the longer term, especially given the growing probability of the ECB reducing rates well before the Fed.

Considering this perspective, the potential for further weakness in EUR/USD should be considered in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is now projected to encounter first resistance at the April high of 1.0885 (April 9), seconded by the March top of 1.0981 (March 8), and the weekly peak of 1.0998 (January 11), all before the psychological 1.1000 level.

In the other direction, a break below the May low of 1.0649 (May 1) might bring the 2024 bottom of 1.0601 (April 16) back into focus, followed by the November 2023 low of 1.0516 (November 1). Once this zone is passed, the pair may target the weekly low of 1.0495 (October 13, 2023), then the 2023 bottom of 1.0448 (October 3) and the 1.0400 round milestone.

So far, the 4-hour chart shows a consistent upward trend. Against this, there is an instant uphill challenge at 1.0885 followed by 1.0942. Meanwhile, the initial contention emerges at 1.0766, followed by 1.0723. The relative strength index (RSI) climbed beyond 81.

• EUR/USD rose to five-week highs near 1.0900.
• The US Dollar sold-off in the wake of a weaker US CPI.
• US headline CPI rose by 3.4% YoY in April.

The ongoing negativity surrounding the US Dollar (USD) spurred yet another positive response in EUR/USD, this time lifting it to surpass five-week highs near the 1.0900 barrier on Wednesday.

The intense decline in the Dollar coincided with a generally negative session in US yields across various durations, all exacerbated after US inflation data tracked by the CPI showed another downtick in consumer prices in April.

This scenario continues to anticipate the Federal Reserve (Fed) embarking on its easing cycle in September, in contrast to a potential earlier onset of interest rate cuts by the European Central Bank (ECB), likely in June.

Regarding the latter, the CME Group’s FedWatch Tool indicates a 70% probability of lower interest rates in the US by September.

This idea was reinforced after Federal Reserve Chief Jerome Powell expressed his expectation of US inflation continuing to decrease through 2024, echoing last year’s trend. He also indicated that it seemed unlikely for the Fed to implement further interest rate hikes.

Somewhat in contrast to Powell’s views, Minneapolis Federal Reserve Bank President Neel Kashkari reiterated on Wednesday his uncertainty regarding the level of restrictiveness in current monetary policy. He emphasized that borrowing costs “probably need to remain at their current level for a while” as US central bankers assess inflation.

Meanwhile, the unchanged monetary policy landscape underscores the divergence between the Federal Reserve and other G10 central banks, particularly the European Central Bank (ECB).

Regarding the ECB, recent statements from policymakers have suggested an increasing likelihood of the bank initiating its easing process in June, although uncertainties remain about the ECB’s future decisions beyond the summer. In this regard, de Guindos mentioned earlier on Thursday that the ECB exercises caution in predicting any trends beyond June.

Looking ahead, the relatively subdued economic fundamentals in the Eurozone, combined with the resilience of the US economy, support the ongoing Fed-ECB policy divergence narrative and favour a stronger Dollar in the longer term, especially given the growing probability of the ECB reducing rates well before the Fed.

Considering this perspective, the potential for further weakness in EUR/USD should be considered in the medium term.

EUR/USD daily chart

EUR/USD short-term technical outlook

On the upside, EUR/USD is now projected to encounter first resistance at the April high of 1.0885 (April 9), seconded by the March top of 1.0981 (March 8), and the weekly peak of 1.0998 (January 11), all before the psychological 1.1000 level.

In the other direction, a break below the May low of 1.0649 (May 1) might bring the 2024 bottom of 1.0601 (April 16) back into focus, followed by the November 2023 low of 1.0516 (November 1). Once this zone is passed, the pair may target the weekly low of 1.0495 (October 13, 2023), then the 2023 bottom of 1.0448 (October 3) and the 1.0400 round milestone.

So far, the 4-hour chart shows a consistent upward trend. Against this, there is an instant uphill challenge at 1.0885 followed by 1.0942. Meanwhile, the initial contention emerges at 1.0766, followed by 1.0723. The relative strength index (RSI) climbed beyond 81.

Most Read: US Breaking News – US CPI Prints Largely in Line with Estimates, USD Dips

The U.S. dollar fell sharply on Wednesday, weighed down by a significant drop in U.S. Treasury yields following the release of softer-than-anticipated April U.S. consumer price index data, which revived hopes that the disinflationary trend that began in late 2023 but stalled earlier this year has resumed.

For context, headline CPI rose 0.3% on a seasonally adjusted basis, against a forecast of 0.4%, bringing the annual rate to 3.4% from the previous 3.5%. Meanwhile, the core gauge climbed 0.3%, with the 12-month related reading easing to 3.6% from 3.8% previously, in line with estimates in both cases.

Although upside inflation risks have not dissipated, today’s report suggests that the cost of living is moderating and moving back in the right direction from the central bank’s vantage point. With oil prices falling sharply in recent weeks, the May data could also be benign and reassuring, giving the Fed the cover it needs to begin easing monetary policy in the fall.

In light of recent developments, the U.S. dollar may find itself in a vulnerable position in the short term, especially with traders growing increasingly confident that the Fed would deliver its first rate cut of the cycle in September. As these expectations firm up, it would not be surprising to see the greenback lose some ground against some of its major peers, such as the euro and the yen.

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FOMC MEETING PROBABILITIES

Source: CME Group

EUR/USD FORECAST – TECHNICAL ANALYSIS

EUR/USD rallied nearly 0.5% on Wednesday, clearing trendline resistance and a key Fibonacci ceiling at 1.0865. If the breakout is confirmed with a follow-through to the upside, we could soon see a move towards 1.0980. On further strength, the focus will turn to 1.1020, which corresponds to a medium-term trendline extended from last year’s high.

Conversely, if sellers mount a comeback and propel prices lower below 1.0865, the pair could start to lose momentum, setting the stage for a possible downward reversal towards 1.0810. Below this technical floor, all eyes will be on the 50-day and 200-day simple moving averages near 1.0790. If weakness persists, a pullback towards 1.0725 cannot be ruled out.

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Change in	Longs	Shorts	OI
Daily	-12%	3%	-3%
Weekly	-33%	21%	-6%

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EUR/USD PRICE ACTION CHART

EUR/USD Chart Created Using TradingView

USD/JPY FORECAST – TECHNICAL ANALYSIS

USD/JPY sold off sharply on Wednesday following the subdued U.S. inflation report, with the exchange rate down nearly 1% and below the 155.00 handle in early afternoon trading in New York. If losses continue, support emerges at 154.65, followed by 153.15. Further losses from this point would expose the 50-day simple moving average and a key trendline at 152.75.

Alternatively, if buyers return and spark a bullish turnaround, resistance could materialize around 156.80, this week’s swing high. Bulls will have a hard time taking out this barrier, but if they do, the pair could gravitate towards 158.00 and even 160.00. However, rallies towards these levels may not be sustained for long, given the risk of intervention in the currency market by the Japanese government.

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USD/JPY PRICE ACTION CHART

USD/JPY Chart Created Using TradingView

EUR/USD Current price: 1.0860

• The US Consumer Price Index rose 3.4% YoY in April, as expected.
• The US Dollar accelerated its decline as inflation figures hint at higher-for-longer interest rates.
• EUR/USD gains bullish momentum and aims to test the 1.0900 mark.

The EUR/USD pair spent the first half of the day consolidating Tuesday’s gains, reaching a fresh intraday high of 1.0836 during European trading hours. The US Dollar came under selling pressure after the release of the United States (US) Producer Price Index (PPI) on Tuesday, as wholesale inflation was higher than anticipated on a monthly basis in April. The report gained relevance ahead of the release of the Consumer Price Index (CPI) for the same month and after data showed inflationary pressures rose in the first quarter of the year.

The pair then broke higher after the US CPI came pretty much in line with the market expectations. The CPI  rose 3.4% YoY in April from 3.5% in March, while the core annual reading printed at 3.6%, easing from the previous 3.8%. On a monthly basis, the CPI was up 0.3%, according to the US Bureau of Labor Statistics (BLS), slightly below the expected 0.4%. The figures were short of worrisome but indicated the Federal Reserve (Fed) could extend its wait-and-see stance on monetary policy.

Other US data released alognside resulted discouraging, as Retail Sales stayed pat in April, while the New York Empire State Manufacturing Index fell to -15.6 in May, worse than the -10 anticipated. A couple of Fed speakers will be on the wires after Wall Street’s opening.

Meanwhile, US indexes jumped north with the news, while government bond yields turned lower, putting additional pressure on the USD.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows it trades near a fresh multi-week high of 1.0868 and is poised to extend its advance. The pair is up for a third consecutive day and developing above all its moving averages. The 20 Simple Moving Average (SMA) gains upward traction below the longer ones, while the 100 SMA provides near-term support around 1.0830. Technical indicators, in the meantime, aim firmly north within positive levels, reflecting increased buying interest.

Bullish strength is more evident in the near term. The 4-hour chart shows the pair running higher above bullish moving averages, with the 20 SMA accelerating north above the longer ones. At the same time, technical indicators head firmly north. The Relative Strength Index (RSI) indicator is currently in overbought territory but without signs of upward exhaustion, leaving the door open for additional gains.

Support levels: 1.0830 1.0795 1.0750

Resistance levels: 1.0870 1.0910 1.0945 

EUR/USD Current price: 1.0860

• The US Consumer Price Index rose 3.4% YoY in April, as expected.
• The US Dollar accelerated its decline as inflation figures hint at higher-for-longer interest rates.
• EUR/USD gains bullish momentum and aims to test the 1.0900 mark.

The EUR/USD pair spent the first half of the day consolidating Tuesday’s gains, reaching a fresh intraday high of 1.0836 during European trading hours. The US Dollar came under selling pressure after the release of the United States (US) Producer Price Index (PPI) on Tuesday, as wholesale inflation was higher than anticipated on a monthly basis in April. The report gained relevance ahead of the release of the Consumer Price Index (CPI) for the same month and after data showed inflationary pressures rose in the first quarter of the year.

The pair then broke higher after the US CPI came pretty much in line with the market expectations. The CPI  rose 3.4% YoY in April from 3.5% in March, while the core annual reading printed at 3.6%, easing from the previous 3.8%. On a monthly basis, the CPI was up 0.3%, according to the US Bureau of Labor Statistics (BLS), slightly below the expected 0.4%. The figures were short of worrisome but indicated the Federal Reserve (Fed) could extend its wait-and-see stance on monetary policy.

Other US data released alognside resulted discouraging, as Retail Sales stayed pat in April, while the New York Empire State Manufacturing Index fell to -15.6 in May, worse than the -10 anticipated. A couple of Fed speakers will be on the wires after Wall Street’s opening.

Meanwhile, US indexes jumped north with the news, while government bond yields turned lower, putting additional pressure on the USD.

EUR/USD short-term technical outlook

The daily chart for the EUR/USD pair shows it trades near a fresh multi-week high of 1.0868 and is poised to extend its advance. The pair is up for a third consecutive day and developing above all its moving averages. The 20 Simple Moving Average (SMA) gains upward traction below the longer ones, while the 100 SMA provides near-term support around 1.0830. Technical indicators, in the meantime, aim firmly north within positive levels, reflecting increased buying interest.

Bullish strength is more evident in the near term. The 4-hour chart shows the pair running higher above bullish moving averages, with the 20 SMA accelerating north above the longer ones. At the same time, technical indicators head firmly north. The Relative Strength Index (RSI) indicator is currently in overbought territory but without signs of upward exhaustion, leaving the door open for additional gains.

Support levels: 1.0830 1.0795 1.0750

Resistance levels: 1.0870 1.0910 1.0945 

• According to Forex market trading, the pound sterling briefly dipped before recovering to around $1.25 as traders digested recent labor data and monetary policy expectations.
• According to official announcements and the economic calendar, the UK unemployment rate rose for the third month and wage growth remained at 6%, in line with Bank of England (BoE) expectations, reinforcing bets that the central bank may soon start cutting interest rates.

At its May meeting, the BoE held interest rates steady, although two members called for a rate cut, signaling a shift towards lowering borrowing costs. Governor Bailey has hinted at potential future rate cuts, suggesting a more flexible monetary policy stance going forward.

Traders slightly increased the probability of a rate cut in June, while a 25-basis-point cut in August remains fully priced in. According to forex trading platforms, the pound rose after the release of surprisingly strong wage figures in the UK. However, upside potential is likely to be limited by another set of labor market statistics showing rising unemployment rates.

Meanwhile, the pound sterling rose against the euro to 1.1642 after the Office for National Statistics (ONS) said wages in Britain, including bonuses, rose by 5.7% on an annual basis in March, much higher than the consensus forecast of a 5.3% reading. Obviously, when bonuses are excluded from the wage data, the figure is even higher at 6.0%.

Clearly, this was before the minimum wage was raised in April. Moreover, these figures suggest that wage pressures are continuing to run ahead of inflation, which could mean that domestically generated inflation in Britain will remain high for some time, potentially delaying rate cuts.

However, the pound’s gains were ultimately limited (GBP/USD rose back to 1.2558) as there were signs of further labor market weakness elsewhere in today’s data releases.

According to the announcement, the UK economy shed 177,000 jobs in the three months to March, up from 156,000 in the previous period. The unemployment rate rose to 4.3% from 4.2%. This suggests that the scope for wage growth at inflation-generating levels is limited, and investors are betting that this scope will eventually shrink sharply as a result. In short, companies will not need to stockpile labor if there are more job seekers. For now, forex markets are likely to look past the hot wage figures, and this is reflected in the relatively muted sterling response.

• 

Technical forecasts for the GBP/USD pair today:

After interacting with the job and wage numbers in Britain, the price of the pound sterling against the US dollar GBP/USD will be affected by the announcement of US inflation numbers today. It will have a strong and direct reaction to the markets’ expectations for the future of raising US interest rates in the future. If the readings are less than expected, bulls may have the opportunity to move towards the resistance levels of 1.2630 and 1.2700, respectively. As mentioned before, the movement around and below the 1.2500 level will remain the most important for bears in emphasizing control. Finally, we still prefer selling GBP/USD at every upward level.

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• The Japanese yen fell again, surpassing 156 yen to the dollar, hitting its lowest level in two weeks, raising concerns about the possibility of Japanese authorities intervening again to support the currency.
• In this regard, Japanese Finance Minister Shunichi Suzuki said that the government is coordinating with the Bank of Japan to ensure consistent policy goals when it comes to foreign exchange.
• He added that they are taking all possible measures to closely monitor yen movements.

Earlier this month, the Japanese yen rose sharply after falling to 160 yen to the US dollar due to suspected government interference, with Bank of Japan data indicating that it spent nearly $60 billion to defend the currency. However, the yen has now given back about two-thirds of those gains as the huge interest rate differential between Japan and other major economies spurs investors to borrow yen and invest in higher-yielding currencies.

According to forex trading platforms, the USD/JPY exchange rate continued its remarkable rebound ahead of the release of key US inflation figures and Japanese GDP figures. It has risen for three consecutive days and is hovering near its highest level since May 1st.

In general, the US dollar/Japanese yen exchange rate will be in the spotlight this week as investors focus on the upcoming US inflation data scheduled for release on Wednesday. Economists polled by Reuters believe US inflation remained stubbornly high in April as the costs of energy, housing, insurance, and medical care rose. Moreover, the median estimate is that headline CPI slowed to 3.4% in April from the previous 3.5% while core CPI slowed to 3.6% from 3.8%.

If these numbers are accurate, this means that inflation has remained stubbornly above the US Federal Reserve’s target of 2%.

Correspondingly, this will mean that the United States is stuck in a state of stagflation, which is characterized by high inflation rates and slow economic growth. Also, the latest data revealed that the economy witnessed growth of only 1.6% in the first quarter, which is less than the fourth quarter’s growth of 3.4%. Furthermore, the latest figures showed that consumer confidence has collapsed to its lowest level since 2022 as concerns about inflation persist. Manufacturing and services PMIs fell into contraction territory in April.

Therefore, if inflation numbers come in stronger than estimates, it means that the US Federal Reserve will choose to leave interest rates higher for a longer period. On the other hand, if inflation slows, the Fed will likely start cutting interest rates in the third quarter.

• 

The USD/JPY exchange rate will also react to the upcoming Japanese GDP numbers scheduled for release tomorrow, Thursday. Economists polled by Reuters expect the report to reveal a contraction of the economy by 0.4% monthly and 1.5% on an annual basis in the first quarter. Ultimately, these numbers are likely to put more pressure on the Bank of Japan as it faces a weak yen.

USD/JPY Technical Analysis and Expectations Today:

The daily chart shows that the USD/JPY exchange rate is on a strong upward trend, indicating that interventions in the Japanese currency have not been successful. Recently, it jumped above the key support level at 151.88, its highest swing of 2023, meaning it formed a breakout and retest pattern. Also, the pair jumped above the 50-day Exponential Moving Average (EMA) while the Relative Strength Index (RSI) moved slightly above the neutral level. Consistently, the Average Directional Index (ADX) has pointed upward, indicating that this pair has upward momentum. Therefore, the outlook remains bullish, as the next target will be at resistance 160.25, which was its swing high on April 29.

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• EUR/USD climbed to a fresh multi-week high above 1.0800.
• The US Dollar could stay under pressure on a soft inflation report.
• The near-term technical outlook points to overbought conditions.

EUR/USD gathered bullish momentum in the early American session on Tuesday and climbed above 1.0800. The pair extended its uptrend and touched its highest level since April 10 on Wednesday. Although the near-term technical outlook points to overbought conditions for the pair, buyers could retain control in case inflation data from the US come in below expectations.

The US Bureau of Labor Statistics (BLS) reported on Tuesday that the Producer Price Index (PPI) rose 2.2% on a yearly basis in April, following the 1.8% increase recorded in March. This print matched the market expectation but failed to provide a lasting boost to the US Dollar (USD). Meanwhile, Federal Reserve (Fed) Chairman Jerome Powell reiterated that they might have to stick to the restrictive policy for longer than expected to bring inflation down toward the 2% target. 

Later in the day, the BLS will release the Consumer Price Index (CPI) data for April. Markets expect the core CPI to rise 0.3% on a monthly basis. A reading of 0.4% or higher could cause investors to refrain from pricing in a rate cut in September and allow the USD to gather strength. On the other hand, a soft monthly core CPI print of 0.2% or lower could cause the USD selloff to pick up steam.

According to the CME FedWatch Tool, investors are currently pricing in a nearly 35% probability that the Fed will leave the policy rate unchanged in September. This market positioning suggests that the USD is facing a two-way risk ahead of the data release.

EUR/USD Technical Analysis

EUR/USD holds comfortably above 1.0790-1.0800, where the 50-day and the 200-day Simple Moving Averages (SMA) align. In the meantime, the Relative Strength Index (RSI) indicator on the 4-hour chart holds above 70, pointing to overbought conditions. Nevertheless, sellers are likely to remain on the sidelines in case 1.0790-1.0800 area holds as support.

On the upside, 1.0865 (static level) aligns as interim resistance before 1.0890-1.0900 (Fibonacci 78.6% retracement of the latest downtrend, psychological level) and 1.0960 (beginning point of the downtrend).

If the pair returns below 1.0790-1.0800 area and starts using it as resistance, sellers could take action. In this scenario, 1.0740-1.0750 (Fibonacci 38.2% retracement, 200-period Simple Moving Average (SMA) on the 4-hour chart) could be seen as next support.

 

• GBP/USD entered a consolidation phase near 1.2600 early Wednesday.
• The 100-day SMA aligns as next resistance at 1.2630.
• April inflation data from the US could ramp up the USD volatility.

GBP/USD declined toward 1.2500 in the early American session on Tuesday but managed to reverse its direction. Supported by the selling pressure surrounding the US Dollar (USD), the pair climbed above 1.2550 and closed the day in positive territory. Early Wednesday, the pair stays relatively quiet near 1.2600 as investors await key April inflation data from the US.

The USD weakened against its rivals on Tuesday as the market mood improved following the producer inflation data, which showed that the Producer Price Index (PPI) rose 2.2% on a yearly basis in April as forecast. Later in the session, Federal Reserve (Fed) Chairman Jerome Powell noted that the PPI data was “quite mixed.” Powell repeated that it was unlikely that the next move would be a rate hike, adding that they were more likely to hold the policy rate where it is.

The US Bureau of Labor Statistics (BLS) will publish the Consumer Price Index (CPI) figures for April later in the session. On a yearly basis, the core CPI, which excludes volatile food and energy prices, is anticipated to rise 3.6% following the 3.8% increase recorded in March. On a monthly basis, the core CPI is forecast to increase 0.3%.

Investors could react to a surprise in the monthly core CPI reading. A strong increase of 0.4% or more could revive expectations over a Fed policy hold in September and trigger a USD rally, forcing GBP/USD to turn south. On the other hand, a soft reading is likely to have the opposite impact on the USD’s valuation and allow the pair to extend its uptrend.

GBP/USD Technical Analysis

After closing above the 200-day Simple Moving Average (SMA), currently located at 1.2540, on Monday, GBP/USD continued to pull away from that key level, reflecting buyer interest. The Fibonacci 0.5% retracement of the latest downtrend aligns as immediate resistance at 1.2600. Once the pair stabilizes above this level, it could face stiff resistance at 1.2630 (100-day SMA) before targeting 1.2670 (Fibonacci 61.8% retracement).

On the downside, 1.2540 (200-day SMA) aligns as key support before 1.2500 (psychological level, static level) and 1.2450 (Fibonacci 23.6% retracement).

 

• GBP/USD entered a consolidation phase near 1.2600 early Wednesday.
• The 100-day SMA aligns as next resistance at 1.2630.
• April inflation data from the US could ramp up the USD volatility.

GBP/USD declined toward 1.2500 in the early American session on Tuesday but managed to reverse its direction. Supported by the selling pressure surrounding the US Dollar (USD), the pair climbed above 1.2550 and closed the day in positive territory. Early Wednesday, the pair stays relatively quiet near 1.2600 as investors await key April inflation data from the US.

The USD weakened against its rivals on Tuesday as the market mood improved following the producer inflation data, which showed that the Producer Price Index (PPI) rose 2.2% on a yearly basis in April as forecast. Later in the session, Federal Reserve (Fed) Chairman Jerome Powell noted that the PPI data was “quite mixed.” Powell repeated that it was unlikely that the next move would be a rate hike, adding that they were more likely to hold the policy rate where it is.

The US Bureau of Labor Statistics (BLS) will publish the Consumer Price Index (CPI) figures for April later in the session. On a yearly basis, the core CPI, which excludes volatile food and energy prices, is anticipated to rise 3.6% following the 3.8% increase recorded in March. On a monthly basis, the core CPI is forecast to increase 0.3%.

Investors could react to a surprise in the monthly core CPI reading. A strong increase of 0.4% or more could revive expectations over a Fed policy hold in September and trigger a USD rally, forcing GBP/USD to turn south. On the other hand, a soft reading is likely to have the opposite impact on the USD’s valuation and allow the pair to extend its uptrend.

GBP/USD Technical Analysis

After closing above the 200-day Simple Moving Average (SMA), currently located at 1.2540, on Monday, GBP/USD continued to pull away from that key level, reflecting buyer interest. The Fibonacci 0.5% retracement of the latest downtrend aligns as immediate resistance at 1.2600. Once the pair stabilizes above this level, it could face stiff resistance at 1.2630 (100-day SMA) before targeting 1.2670 (Fibonacci 61.8% retracement).

On the downside, 1.2540 (200-day SMA) aligns as key support before 1.2500 (psychological level, static level) and 1.2450 (Fibonacci 23.6% retracement).

 

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However, retail sales figures could also influence the Fed rate path. Weaker-than-expected retail sales figures could signal a softer inflation outlook and reduce the chances of a Fed rate hike. Economists forecast retail sales to increase by 0.4% in April after rising by 0.7% in March.

With inflation and retail sales in focus, FOMC member commentary also needs consideration. FOMC members Neel Kashkari and Michelle Bowman are on the calendar to speak. Reactions to the US data and views on the Fed rate path warrant investor attention.

Short-term Forecast

Near-term trends for the USD/JPY will hinge on the US CPI Report and FOMC member commentary. A hotter-than-expected US CPI Report could reduce investor bets on a September Fed rate cut and tilt monetary policy divergence toward the US dollar. However, US retail sales figures and intervention chatter to bolster the Yen will also influence the USD/JPY pair.

USD/JPY Price Action

Daily Chart

The USD/JPY remained well above the 50-day and 200-day EMAs, confirming the bullish price trends.

A breakout from the 156.5 handle could signal a USD/JPY move toward the 158 level. A USD/JPY return to 158 could give the bulls a run at the April 29 high of 160.209.

On Wednesday, the BoJ, the Japanese government, US economic indicators, and the Fed need consideration.

Alternatively, a USD/JPY drop below 155.5 would bring the 50-day EMA into play. A break below the 50-day EMA could give the bears a run at the 151.685 support level.

The 14-day RSI at 60.65 indicates a USD/JPY move to the 160 handle before entering overbought territory.