• The NFP report showed bigger-than-expected job growth in May.

• Traders scaled back rate cut expectations, leading to a rally in the dollar.

• Economists expect the headline CPI to hold steady at 3.4%.

The USD/JPY weekly forecast shows renewed bullish momentum as the US labor market’s resilience clouds the outlook for Fed rate cuts.

Ups and downs of USD/JPY

USD/JPY closed well above its lows as the dollar rallied after better-than-expected economic data. This week, the yen was mainly at the mercy of the dollar, as Japan had no high-impact events. Meanwhile, the US released several reports at the start of the week that gave the impression that the economy was deteriorating amid high borrowing costs. Consequently, investors raised the chances of a Fed rate cut in September to 69%.

However, this reversed on Friday when the NFP report showed bigger-than-expected job growth. The US added 272,000 jobs in May, well above expectations of 182,000. As a result, traders scaled back rate cut expectations, leading to a rally in the dollar.

Next week’s key events for USD/JPY

Next week will be packed with high-impact economic events from the US and Japan, which will likely cause a lot of volatility. The US will release consumer and wholesale inflation data, shaping the Fed’s rate-cut outlook. Economists expect the headline CPI to hold steady at 3.4%. A higher number would indicate persistent inflation and lower the chances of a rate cut in September. On the other hand, a lower number would strengthen the case for a rate cut.

Moreover, investors will focus on the FOMC policy meeting for clues on whether policymakers are gaining confidence in the fight against inflation. The messaging during and after the meeting will carry much weight, especially after the CPI report.

Meanwhile, the Bank of Japan will also hold its policy meeting, which will likely keep rates unchanged.

USD/JPY weekly technical forecast: Price rebounds after solid support trendline

On the technical side, the USD/JPY price is bouncing higher after retesting a solid support trendline. Moreover, it is on the verge of breaking back above the 22-SMA to confirm a bullish sentiment shift. Meanwhile, the RSI trades slightly above 50, supporting bullish momentum.

Therefore, in the coming week, bulls will likely challenge the 158.01 key resistance level. A break above this level would confirm a continuation of the bullish trend, allowing the price to go beyond the 160.00 level to 162.51.

https://www.forexcrunch.com/blog/2024/06/08/usd-jpy-weekly-forecast-fed-rate-cut-offset-by-strong-nfp/