On Thursday, the USDJPY currency pair regained some of Tuesday's losses as service sector data from the world's largest economy showed a rebound in May. This circumstance may reinforce Federal Reserve (Fed) officials' concerns about the timing for interest rate cuts.
According to the ISM, the Purchasing Managers' Index (PMI) in the US service sector was at the level of 53.8 in May. In April, it was at 49.4. Analysts surveyed by Reuters expected it at 50.8.
At the same time, the number of jobs in the US private sector increased by 152,000 in May compared to the predicted 173,000, according to ADP. Data for the previous month were revised downward to 188,000. Investors are now awaiting Friday's Non-Farm Payrolls to assess the state of the US economy.
Traders are pricing in a roughly 70% chance of US monetary policy easing in September, based on CME FedWatch data.
As for the yen, its recent strength can be explained by expectations that the Bank of Japan will reduce its large-scale bond buying this month. According to Governor Kazuo Ueda, this would be appropriate as the Japanese regulator is about to abandon large-scale monetary stimulus. The BOJ's two-day monetary policy meeting is expected next week.
At the technical level, the USDJPY quotes are forming an uptrend on the D1 timeframe. The price has pulled back from the trend support, confirming its strength. Convergence of the Relative Strength Index (RSI) (standard values) on the H4 timeframe suggests the potential growth of the currency pair within the upward channel.
Signal:
The short-term outlook for the USDJPY pair suggests buying.
The target is at the level of 158.500.
Part of the profit should be taken near the level of 157.400.
A stop-loss could be placed at the level of 154.000.
The bullish trend is short-term, so trade volume should not exceed 2% of your balance.
This content is for informational purposes only and is not intended to be investing advice.
