US CPI and FOMC Rate Decision – EUR/USD and USD/JPY Technical Analysis

This week, financial markets are focused on the FOMC interest rate decision, as well as key economic indicators such as the CPI and PPI. The Fed's decision follows rate cuts from the ECB and BOC, with expectations of holding rates in June. Investors are also looking for signals from the Bank of Japan amid the yen's all-time lows. In this context, we analyze market expectations and recent price developments, particularly focusing on EUR/USD and USD/JPY, which have shown resilience with a decade-long uptrend.

FOMC meeting and key economic indicators: awaiting Fed decision

This week, the financial world eagerly awaits the FOMC interest rate decision, statement, press conference and dot plot. This follows rate cuts from the European Central Bank (ECB) and the Bank of Canada (BOC), each by 25 basis points, in response to falling inflation.

Inflation in the United States has declined significantly from its peak in 2022. However, recent CPI and PCE figures indicate persistent inflation in sectors like housing and services. Fed Chairman Jerome Powell has stressed that any future rate cuts would depend on sustained disinflation. Other Fed officials share these concerns.

Bloomberg analyst surveys, media polls and CME Group data suggest the Fed will maintain the current interest rate of 525 to 550 in June. Traders now expect just two rate cuts in 2024, starting in September, a change influenced by strong employment figures. Market participants are also eager to see updates in this quarter's dot chart, especially regarding rate cuts planned for 2024.

Also in the spotlight is the upcoming Consumer Price Index (CPI) report, which is expected to be released on the same day as the FOMC meeting. Forecasts suggest that the one-year CPI will hold at 3.4%, with the one-year core CPI also holding at 3.6%. CPI M/M is expected to fall by 0.3% to 0.1%, likely due to lower oil prices. The services sector, a recent concern, showed signs of stabilization within the core CPI. Additionally, a notable increase in the costs of medical services has brought prices back to their averages. The timing of the CPI report release during the FOMC meeting adds another layer of intrigue, as traders and the Fed deal with this unusual scenario.

The PPI report is due this week, with expectations for a decline in PPI M/M and Core PPI M/M. Like the CPI, the services component of the PPI has increased since January 2024, returning to pre-COVID-19 levels.

Bank of Japan expected to maintain rates despite weak yen

Meanwhile, later in the week, the Bank of Japan (BOJ) is expected to maintain its current interest rate of 0.10%. However, traders will be watching for any signs of quantitative tightening (QT), which could impact the market. The Japanese yen, currently trading near a 34-year low, adds another element of uncertainty. Despite the interest rate differential between the United States and Japan, USDJPY carry trades remain attractive to some investors, although they carry inherent risks.

EUR/USD Technical Analysis – Daily Chart

Price action broke out and closed above the upper boundary of the narrowing formation identified on the chart above, two pullbacks took place as well as a deficit as price found support above a confluence of support, represented by the monthly PP and weekly S1 support near 1.0797. . However, last week, nonfarm payrolls surprised markets with higher-than-expected numbers, prompting a third pullback that brought price action back to the same frontier discussed above. above. Price action broke and closed below three moving averages: EMA9, MA9 and MA21. The unsmoothed RSI7 aligns with price action and is currently in oversold territory. The potential double bottom (or triple bottom) formation discussed last time has materialized and still has potential as price has found support above the resistance line connecting the three bottoms. If price action fails above this line and trades within the narrowing formation, the pattern may be invalidated. Weekly Chart Update: Price action remains below the lower boundary of the ascending channel discussed earlier; multiple pullback attempts have failed so far and the price continues to trade below trend. Monthly Chart Update: Last month the candle was a bullish engulfing candle after the price rebounded to where it encountered resistance at its annual pivot point of 1.0920, bringing the price action back to 1, 0760 where it found support above its intermediate MA21.

USD/JPY Technical Analysis – Daily Chart

The USD/JPY price has shown remarkable resilience, maintaining a prolonged uptrend for over a decade. The latter part of the uptrend, influenced by the fundamental economies of the United States and Japan, is marked by the blue lines on the chart. The price action was trading in an ascending channel; it crossed the lower boundary of the channel at the end of 2023. However, it has been trying to re-enter the channel since the breakout. (Unchanged from last week) Following the final Bank of Japan meeting in 2024, price action was able to cross the lower boundary of the channel and re-enter it. However, the breakout was met with fierce resistance represented by a strong bearish engulfing candle, which closed below the lower boundary at the end of the trading day. After the failed breakout, the price action attempted three pullbacks and encountered resistance for each attempt, as shown on the chart. Each time, the price action failed to re-enter the channel, formed bearish engulfing candles and deficits as the price action met resistance during its PP last week at 157.12. Price has fallen below a confluence of moving averages; however, this did not last long as the price reversed and closed above all three averages as well as this week's pivot point of 156.26, a breakout and close below this level could invalidate the recent upward movement in prices. Negative divergence between the last bullish move and tick volume as price rose on falling volume. The fast RSI7 still aligns with price action and has reversed from overbought territory.

Conclusion

In conclusion, market participants are eagerly awaiting the FOMC decision on interest rates and the release of key economic indicators, including the CPI. The Fed's decision, as well as possible policy changes from the Bank of Japan, will significantly influence foreign exchange markets. Technical analysis for EUR/USD and USD/JPY suggests potential volatility and highlights key levels to watch. Traders should closely monitor these events and indicators for possible trading opportunities, while considering the broader economic context and geopolitical risks.

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