USD/JPY is expected to trade nervously next week, with upside capped as the market watches long-term interest rate trends and crude oil price movements. EUR/USD is expected to face stronger downward pressure due to uncertainty surrounding Europe.
USD/JPY is expected to remain capped next week as the market watches long-term interest rate trends, against a backdrop of persistent US inflation, and crude oil price movements amid escalating tensions in the Middle East. The expected ranges are USD/JPY 156.50–159.50 yen and EUR/USD 1.1050–1.1300 dollars.
After September’s US Consumer Price Index exceeded market expectations, expectations of additional rate hikes by the Federal Reserve temporarily resurfaced. However, ahead of the FOMC blackout period beginning on the 26th, views have spread that high inflation is not an urgent concern. Depending on long-term interest rate trends, USD/JPY could see its movement constrained around the 200-day moving average.
In Europe, deteriorating French public finances and the prospect of a wider fiscal deficit are weighing on the euro, while concern is spreading over widening European interest-rate differentials and the risk of a downgrade to French government debt. With the ECB Governing Council meeting approaching, the euro is expected to weaken if the ZEW Economic Sentiment Indicator and European PMIs are weak.
In the review of the week of 12 September, USD/JPY rebounded to 157.55 yen after battling in the 158-yen range, then briefly recovered to the lower 158-yen range. EUR/USD fell in line with US long-term interest rate movements before rebounding.