Cautious Ahead of US Inflation

• There was an unexpected rise in the number of initial jobless claims in the US.

• The government of Japan will probably choose academic Kazuo Ueda as the new governor of the Bank of Japan.

•  Investors are anxious about the upcoming US inflation report.

The USD/JPY weekly forecast is bullish as Fed policymakers continue emphasizing the need for more hikes. However, there is caution ahead of the US inflation report.

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Ups and downs of USD/JPY 

USD/JPY ended last week higher. Although Fed Chair Powell reiterated that “disinflation” is already underway on Tuesday, he said rates might need to increase if the US economy stayed strong.

Contrary to forecasts, more people than normal in the United States applied for unemployment benefits last week. However, the fundamental trend remained consistent with a tight labor market. 

The government of Japan will probably choose academic Kazuo Ueda as the new governor of the Bank of Japan. Initially, the news caused the yen and bond yields to rise, which fueled wagers that the 71-year-old would end the super-low interest rates.

The Japanese yen lost some gains when Ueda stated it was reasonable for the BOJ to maintain its ultra-easy policy.

Next week’s key events for USD/JPY

Next week, all focus will be on the US inflation report. Investors are anxious about the upcoming US inflation report, which could reveal a figure higher than markets had predicted. This is because data on Friday indicated expectations for a sustained price increase over the coming year.

USD/JPY weekly technical forecast: Bulls push above the strong 22-SMA resistance

The daily chart shows USD/JPY trading above the 22-SMA for the first time since November last year. The price has been in a very clear downtrend, respecting the 22-SMA as resistance. It made consistent lower lows and lower highs until it got to the 128.08 support.

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The bears could no longer make a lower low as the 128.08 support proved too strong to break. This allowed bulls to return with a strong candle that broke above the 22-SMA. The RSI has also crossed above the 50-mark, indicating a shift in sentiment from bearish to bullish.

However, for a new bullish trend to be confirmed, the price must make higher highs and higher lows. It might also consolidate before pushing higher. The bearish trend can only go on if the price breaks below the SMA and the 128.08 support.

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