USD/JPY Outlook: Dollar Extends Gains After Upbeat CPI…

• The dollar rallied last week after consumer inflation figures increased more than expected.

• Traders give the Fed a 91% chance to lower borrowing costs by 25-bps in November. 

• Market participants await the US retail sales report.

The USD/JPY outlook leans bullish, with the dollar firm after better-than-expected consumer inflation data. Meanwhile, the yen was weak despite Ishiba’s comments that he would not intervene in the BoJ’s policy adjustments.

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The dollar rallied last week after consumer inflation figures increased more than expected. The CPI rose by 0.3% in September and completely dashed hopes for another massive Fed rate cut this year. Furthermore, the inflation numbers came after the NFP report, which revealed an unexpected jump in US job growth.

Initially, policymakers had taken a dovish tone due to fears that the US labor market was deteriorating. As a result, the focus shifted to preserving growth and demand. Therefore, the US central bank implemented a 50-bps rate cut, raising bets for more such cuts in 2024 and weighing on the greenback.

However, the dollar rebounded as incoming data changed this outlook. Currently, there is a 91% chance that the Fed will lower borrowing costs by 25-bps in November. Furthermore, market participants are now pricing a slight chance of a pause. The next major report will show retail sales, which might shift the outlook for rate cuts.

Elsewhere, the upcoming presidential election could cause some market turmoil. Therefore, market participants might prefer to stay on the sidelines ahead of the final result. 

Meanwhile, the yen fell despite Ishiba’s comments on Saturday that he would stay out of the BoJ’s mandate for price stability. His earlier comments showed that he did not support a near-term rate hike.

USD/JPY key events today

It will be a slow start to the week for USD/JPY as neither the US nor Japan will release high-impact data.

USD/JPY technical outlook: Weaker bullish trend

On the technical side, the USD/JPY price is climbing after retesting the 30-SMA support. The bullish bias is strong, with the price above the SMA. At the same time, the RSI trades near the overbought region. However, it showed some weakness with a slight bearish divergence. 

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Furthermore, price action shows smaller candles that show exhaustion. Therefore, bulls might fail to breach the 150.01 resistance level. Meanwhile, a break below the SMA will show a shift in sentiment to bearish.

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