USD/JPY Outlook: Strong Dollar Faces Yen Reversal at Key Supply

The US Dollar gained momentum following the release of July's US Personal Consumption Expenditures (PCE) Price Index last Friday. As the Federal Reserve's (Fed) preferred measure of inflation, the PCE data holds significant weight in the eyes of investors. The report indicated that US inflation remained steady compared to the previous month, easing concerns that the US economy might be decelerating faster than anticipated. In a "soft-landing" scenario, where the economy avoids a severe downturn, the US Dollar is likely to maintain its strength more effectively than if a recession were imminent.

On the technical front, the Japanese Yen Futures are currently retesting a Supply Area established on August 5, signaling a potential reversal. The latest Commitment of Traders (COT) report highlights a stark contrast between retail traders and institutional players: while retail traders are heavily long on the Yen, smart money is shifting its position decisively towards the bearish side. Additionally, the seasonality of the Yen suggests a historical tendency for the currency to experience a downturn during this period of the year.

Given these factors, we anticipate that the USD will continue to strengthen against the JPY. Keep a close eye on the USD/JPY chart for potential trading opportunities as this dynamic unfolds.


USD/JPY CHART

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