You probably wonder what is causing such large increases on the USDJPY – that is, the systematic weakening of the yen. The reason is a big divergence in monetary policy in Japan and USA.
Interest rates differ 5.4% in favor to USD.  the US10Y pay today 4.27%… the JGB hardly 1%.
The situation on USDJPY largely depends on the US10Y ( bond ) yields. We can see that since 2 weeks the correlation between these instruments has been broken . This heralds the possibility of a dynamic return to positive correlation. The question is whether the USDJPY will follow the US10Y or vice versa .
Yesterday’s statement of Fed Governor Michelle Bowman that she is willing to raise rates again “should progress on inflation stall or even reverse.” She also expects inflation to remain elevated for some time, keeping the Fed from easing policy soon. In general, the US central bank has indicated that it needs more confidence on the inflation outlook before lowering rates, in contrast to other major central banks like the ECB, SNB and BOC which have already started their easing cycles. Investors now look ahead to weekly jobless claims, durable goods orders and pending home sales data on Thursday, a well as Friday’s PCE inflation report to better guide the outlook.
In my opinion, tomorrow’s data PCE will have huge impact on the forex market.
And if any intervention happens – BoJ probably will wait until tomorrow to see the numbers.
PCE- The Core Personal Consumption Expenditure Price Index in the United States measures the prices consumers pay for domestic purchases of goods and services, excluding the prices of food and energy. The core PCE is the inflation metric preferred by the Federals. The central bank has a 2% goal.
A higher than expected figure should be seen as positive (bullish) for the USD while a lower than expected figure should be seen as negative (bearish) for the USD.
So if tomorrow we see PCE below 2.7 – it might weaken the dollar and USDJPY would fall… but if the index is higher? Dolar will get a boost…

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The above analysis is based on the PA+MACD strategy, a detailed description of which you can read HERE . I will talk more about the PA+MACD strategy applied to these currency pairs during the live trading sessions, which you can attend from Monday to Friday.
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