BoJ keeps policy unchanged, Yen falls further

The release of multiple economic indicators in the US yesterday took the markets by surprise, resulting in a significant drop in US indices and pushing the estimated timing of a potential rate cut by the Federal Reserve towards December.

The first surprise was the Q1 GDP, with a growth rate of only 1.6%, which is less than half of the growth rate of Q4 of the previous year, despite an anticipated growth rate of 2.5%.

The Core PCE QoQ rose to 3.7% in Q1 from 2.0% in Q4 of the previous year, which has raised concerns that the US economy might be facing stagflation. Additionally, Personal Consumption exhibited a notable slowdown, growing by 2.5% in Q1 compared to 3.3% in Q4 of the previous year, falling short of the anticipated 3.0% slowdown only.

US data ahead

Investors are focusing on today’s data to confirm or deny inflation fears.

The Core PCE YoY is the most important figure to watch, and estimates suggest further slowing towards 2.7%, which would be the lowest reading since March 2021.

Confirmation that the Fed’s most favorable inflation gauge remains on track and would support earlier rate cuts will come from the slowed-down YoY Core PCE.

DXY failed below 106.0

The US Dollar Index closed yesterday’s trading with a bearish reversal candle, failing to break above its resistance level of 106.0 despite the release of Core PCE QoQ data.

Today’s data is crucial as it will determine whether the Federal Reserve will be able to reduce interest rates this year or not. If the data confirms the reduction, it could further weaken the US Dollar and potentially lead to a retest of the 105.0 level or lower. Conversely, if there is an unexpected positive outcome, it could strengthen the upward trend, with a break above 106.0 highly likely.

USDJPY above 156.50

The Bank of Japan (BoJ) disappointed Yen bulls by keeping its current policy unchanged without providing sufficient details about JGB purchases. This led to the USDJPY reaching new levels not seen in over 30 years, trading above 156.50.

Currently, the next level to keep an eye on is at 157. If the BoJ fails to provide any fresh information about the next phase, it could put pressure on the Japanese Yen. Although intervention to halt JPY weakness is inevitable, traders should be cautious and manage their risks as it may take longer than expected to intervene.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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