USD/JPY aims to recapture two-decade high on stable forecasts for US PCE, Fed Powell eyed

• USD/JPY is aiming to recapture its two-decade high at 136.71 on firmer DXY.
• The DXY is scaling higher on expectations of stable US PCE figures.
• Japan’s Retail Trade may outperform on an annual basis but will underperform on a monthly basis.

The USD/JPY pair displayed a vertical upside move after violating the three-day high of 135.50. The major has turned into a consolidation phase and may turn into imbalance after giving an upside break of the balance formed in a range of 136.06-136.38. An upside break of the consolidation will unleash the greenback bulls to recapture its two-decade high at 136.71.

The major is performing well in the FX domain as the US dollar index (DXY) has been captured by the bulls on expectations of a stable US Personal Consumption Expenditure (PCE). A preliminary estimate for the US PCE for the first quarter of CY22 is 7%, similar to its prior release. The US economy is facing the headwinds of a higher inflation rate. For that, the Federal Reserve (Fed) has already elevated its interest rates to 1.50-1.75%. However, not even a minute impact has been reflected on the inflation mess. Therefore, an unchanged PCE figure will also dampen the sentiment of the households in the US.

Considering the stable forecast for the US PCE figures, Fed chair Jerome Powell is expected to dictate a hawkish stance on July monetary policy. The speech from Fed Powell on Wednesday will provide insights about the likely monetary policy action by the Fed in July.

On the Tokyo front, investors are awaiting the release of Japan’s Retail Trade. The economic data may improve to 3.3% vs. 2.9% recorded earlier on an annual basis. While the monthly figure may decline to -0.1% from the former release of 0.8%.