USD/JPY Forecast: Poised to climb further, US stimulus/inflation data in focus

The Japanese yen was the worst-performing currency on Thursday and was pressured by a combination of factors, triggering a strong rally in the USD/JPY pair. The already stronger global risk sentiment got a strong boost in reaction to reports that US President Joe Biden will announce a $6 trillion budget for the fiscal year 2022. This comes after the Japanese government slashed its economic outlook for the first time in three months, which continued undermining the safe-haven JPY.

On the other hand, a sharp rise in the US Treasury bond yields helped to put a tentative floor under the US dollar and provided an additional boost to the major. In fact, the yield on the benchmark 10-year US government bond jumped back above the 1.60% threshold amid concerns about the coming supply of government debt. This further fueled worries about rising inflationary pressures, which might force the Fed to act faster and tighten its monetary policy sooner rather than later.

On the economic data front, the number of Americans filing new claims for jobless benefits fell to the lowest level since mid-March 2020. A separate report confirmed that the US economy expanded by 6.4% annualized pace during the first quarter of 2021. Adding to this, the Durable Goods Orders indicated an acceleration in business spending on equipment. The market reaction to the data, however, turned out to be muted as the focus remains on Friday's release of the PCE price index.

Nevertheless, the pair settled near the top end of its daily trading range and climbed to the highest level since April 9 during the Asian session on Friday. Investors will get another read on the US inflation later during the early North American session when the US Bureau of Economic Analysis (BEA) releases the Fed's preferred inflation gauge. The data will play a key role in influencing the near-term USD price dynamics. Apart from this, the US bond yields and the broader market risk sentiment might further contribute to produce some trading opportunities around the major.

Short-term technical outlook

From a technical perspective, the overnight move and a sustained strength above the 61.8% Fibonacci level of the 110.97-107.48 downfall support prospects for additional gains. Some follow-through buying beyond the key 110.00 psychological mark will reaffirm the positive outlook and pave the way for a move toward the 110.65-70 horizontal resistance. The momentum could further get extended and allow bulls to make a fresh attempt to conquer the 111.00 mark.

On the flip side, the previous monthly tops, around the 109.65-60 region, coinciding with the 61.8% Fibo. level, now seems to protect the immediate downside. Any further decline might now be seen as a buying opportunity near the 109.35-30 horizontal support. This is closely followed by the 50% Fibo. level and the 109.00 mark, which should now act as a strong base for the pair.