The USD/JPY exchange rate has formed a giant inverse cup-and-handle pattern, along with a bearish flag, as traders await the upcoming Fed and BoJ interest rate decisions. It was trading at 147.65 on Friday, down sharply from its year-high of 161.93.
Fed and BoJ decisions
The USD/JPY pair will be one of those in the spotlight as the Federal Reserve and the Bank of Canada publish their interest rate decisions.
Economists expect the Federal Reserve to ignore Donald Trump’s pressure to slash interest rates. Instead, the bank will leave rates unchanged between 4.25% and 4.50%.
Most of the Fed’s officials have been highly concerned about US inflation since Trump initiated his trade war. Their concerns are valid as the country’s inflation has started rising in the past few months.
The headline consumer price index rose from 2.4% in May to 2.7% in June, while the core inflation moved to 2.9%. These numbers have moved further away from the Fed’s target in the past few months.
The USD/JPY will react to several important economic data from the United States. For example, the Conference Bureau will release the latest consumer confidence report on Tuesday.
Consumer confidence is a crucial indicator that helps investors anticipate what to expect from the economy. The other key data to watch this week will be the first reading of the US second-quarter GDP data on Wednesday, personal consumption expenditure (PCE) on Thurday, and the nonfarm payrolls on Friday.
Meanwhile, the Bank of Japan will deliver its interest rate decision on Friday this week. Like other central banks, analysts expect the bank to maintain its rates at 0.50%.
The BoJ officials will likely pause as they anticipate what to expect from the recently signed deal between the US and Japan. The deal will see Japan pay a 15% tariff on all goods sent to the United States.
These tariffs will affect some of Japan’s largest exporters, including Toyota and Honda. Also, Japan’s government pledged to invest $500 billion in the United States.
Details of this investment pledge remains unclear, although Trump has hinted that the US will direct the investments and take 90% of the profits.
USD/JPY technical analysis
The daily chart shows that the USD/JPY exchange rate has crashed from last year’s high of 161.93 to 147.66 today. Most recently, it has formed an inverse cup-and-handle pattern, a popular continuation sign.
It has also formed a bearish flag pattern, which is made up of a vertical line and some consolidation. Therefore, the pair will likely have a bearish breakdown as traders eye the lower side of the flag at 144.
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