USD/JPY Analysis: Caution Amid Overbought Conditions

(Click on image to enlarge) According to reliable trading platforms, the US dollar exchange rate has fluctuated after US producer price inflation rose 1.8% year-on-year in September, exceeding expectations of a modest 1.6% increase, while the August figure was revised upwards to 1.9%. The producer price index measures inflation rates in US factories and is seen as a key indicator of core inflation, which recorded a number higher than the consensus of 2.4% year-on-year just 24 hours earlier.Financial markets are also grappling with new communications from Fed members: Atlanta Fed President Raphael Bostic said, “I’m perfectly comfortable skipping a meeting if the data suggests that’s appropriate.” And on Wednesday, San Francisco Fed President Mary Daly also said there is room to keep US interest rates unchanged next month, saying, “It’s likely that rates will be cut once or twice this year.”Commenting on this, Paul Ashworth, chief economist at Capital Economics, said: “Along with unexpectedly strong Labor market data, September’s price data suggests that more than one Fed official may regret starting the easing cycle with a 50-basis-point rate cut.” He added, “We expect a more modest 25-basis-point cut at the FOMC meeting in early next month. The data is not strong enough to justify leaving rates unchanged.”Neither the economic data nor the comments by Daly and Bostic had a significant impact on the US dollar price, suggesting that the markets have already moved to price in less than two more cuts in 2024 before the comments. The market expects US interest rates to be cut by about 40 basis points for the rest of the year, meaning that less than two full 25-basis-point rate cuts are expected. This can certainly still be adjusted downwards, which would strengthen the US dollar, but it now seems that the lion’s share of the adjustment in Favor of the dollar has occurred.According to analysts, the rise in US yields has almost ended, and what we will continue to see is a volatile, not a volatile, exchange rate market, and next month’s jobs report will be distorted by hurricanes, which may argue for a 25-basis point cut instead of a stop.Meanwhile, the rise of the US dollar is likely to pause temporarily until US Treasury yields resume their rise. Jonas Goltermann, Deputy Chief Economist for Financial Markets at Capital Economics, says: “With financial markets now shifting towards discounting the potential halt to the Fed’s intended rate-cutting cycle – which seems unlikely in our view – we see limited further upside for the dollar from US interest rate expectations in the near term.” USD/JPY Technical Analysis and Expectations Today:USD/JPY has now retreated to trade at its 100-hour moving average. Previously, Last Thursday’s decline had pushed the pair close to oversold levels on the 14-hour Relative Strength Index (RSI). In the near term, based on the hourly chart, USD/JPY is trading within a descending channel formation. Also, the 14-hour RSI supports a bearish bias as it approaches oversold levels. Therefore, bears will target extended declines around 148.51 or lower at 147.80. On the other hand, bulls will look to pounce on rebounds around 149.65 or higher at 150.59 resistance.In the long term, based on the performance on the daily chart, USD/JPY is trading within an ascending channel formation. Technically, the 14-day RSI seems to support the bullish bias as it approaches overbought conditions. Therefore, bulls will look to extend the current winning streak towards 153.14 or higher to the 157.93 resistance. On the other hand, bears will look to pounce on pullbacks around 144.14 or lower at the 139.49 support.More By This Author:USD/JPY Analysis: Poised for Action: Will 150 Hold Or Break?EUR/USD Analysis: New Downward ChannelXAU/USD Gold Price Analysis Today: Gold Stabilizes Supported by Safe-Haven Demand