Economists are predicting an increase in the ISM Manufacturing PMI from 46.8 in July to 47.8 in August. This data, while only accounting for less than 30% of the US economy, is crucial in shaping expectations of a soft landing for the US economy. However, investors should pay close attention to the subcomponents of the data, particularly job creation trends, as the labor market comes under increasing scrutiny. Positive numbers could lead to a decrease in investor expectations of a 50-basis point rate cut by the Federal Reserve in September, potentially driving the USD/JPY pair towards the 147.500 level. On the other hand, weaker figures may fuel speculation about a larger rate cut, causing the USD/JPY to drop towards 145.
Shane Oliver, the Head of Investment Strategy and Chief Economist at AMP, provided insight into the inflation numbers, stating that the US core PCE deflator for July was slightly softer than expected at 0.16%mom/2.6%yoy. He noted that this leaves the Federal Reserve on track to make a cut in September, likely by 0.25%, barring significant weakening in the job market. This information adds another layer of complexity to predicting the direction of the USD/JPY pair.
The movement of the USD/JPY pair will be heavily influenced by factors such as the services sector PMI, wage growth, and household spending figures from Japan. Positive data from Japan could lead to an increase in bets on a BoJ rate hike in Q4 2024, boosting demand for the Yen. However, data from the US services sector and labor market conditions will also play a significant role in shaping investor sentiment. Weaker numbers in these areas could heighten expectations of a larger rate cut by the Federal Reserve and drive the USD/JPY lower towards the 145 level.
Investors are advised to remain vigilant and monitor real-time data, insights from central banks, and expert commentary to make informed decisions regarding their trading strategies. By staying updated on the latest news and analysis, investors can better manage the volatility of the USD/JPY pair. Technical analysis indicates that the USD/JPY is currently below the 50-day and 200-day EMAs, signaling a bearish trend. A possible return to 147 could provide an opportunity for the bulls to test the 147.500 resistance level, with a potential breakout leading to a move towards 148.529. Conversely, a drop below the 145.891 support level could open the door to further losses towards 144.500 and 143.495. The 14-day RSI reading of 45.41 suggests a potential break below 143.495 in the near future.