USD/JPY Faces Upside Resistance Ahead of PCE Deflator Release
The USD/JPY currency pair may face resistance as it approaches its upside target ahead of the release of the July PCE deflator data. According to Tsutomu Nakamura, a currency analyst at Gaitame.com Research Institute, a strong reading in the PCE deflator could lead to expectations of an earlier Federal Reserve rate hike and trigger dollar buying.
However, Nakamura notes that market attention will be directed towards Fed Chair Warsh's speech at the Jackson Hole Symposium on August 28, which may limit the reaction to any strong data release. He also points out that easing Middle East tensions could push down crude oil prices, capping dollar upside.
The USD/JPY pair rose approximately 0.1% on August 25, climbing to around 159.49 during Asian trading hours before being trimmed by dollar selling in European trading. The US government's consideration of redeploying diplomats to key posts in the Middle East and a framework proposal for resuming safe navigation through the Strait of Hormuz also contributed to the drop in crude oil prices.
Nakamura notes that even if the PCE deflator comes in strong, one-sided dollar buying is unlikely to materialize due to market attention being focused on Fed Chair Warsh's speech. He also mentions that easing Middle East tensions could serve as another factor capping dollar upside.