USDJPY Outlook: Strong PMI Might Steer Dollar Higher

The U.S. dollar surged on Thursday and helped the DXY index reverse its -0.3% decline. The USDJPY price action weakened, because the U.S. Treasury yields are difficult to continue the rebound. The initial value of the PMI scheduled for tomorrow may affect the risk trend before the FOMC bookmark. 
 
During the trading hours on Thursday, the US Dollar bulls and bears competed for directional control. As a result, the DXY index closed almost flat. The US Dollar as a whole fell to -0.3% at the intraday low. This seems to be due to the disappointing weekly unemployment claims data, which led to downward pressure on US Treasury yields, which dragged the US Dollar/Yen down by 17 points during the session. The European Central Bank’s decision also put pressure on the US Dollar. Although indirectly, the price trend of the Euro/Dollar accounted for 57.6% of the performance of the DXY index. In other words, the market may pay attention to the upcoming risk events brought about by the initial value of the PMI to be released on Friday, July 23, in order to find clues about the next trend of the US Dollar.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (19 FEBRUARY TO 22 JULY 2021)

DXY Index Price Chart US Dollar Forecast

Chart by @RichDvorakFX created using TradingView

Better-than-expected U.S. Purchasing Managers Index data may further tighten the Dollar, especially if the employment and inflation components show signs of strengthening. This takes into account the robustness of economic data to continue to put pressure on Fed officials to reduce the timetable for asset purchases. On the other hand, if the PMI report is lower than expected, we may see the U.S. Dollar decline as the market further reduces the Fed’s reduction bet.

USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)

USD Price Chart Outlook US Dollar Implied Volatility Trading Ranges USDJPY EURUSD USDCAD

It is worth noting that the implied volatility reading for the US dollar overnight appears to be quite sluggish. This indicates that tomorrow the market may remain choppy and rangebound. This situation may be supported by relatively online PMI quick data. However, looking at next week in our economic calendar, we see that the Fed will make an interest rate decision next Wednesday, July 28 at 18:00 GMT, which may lead to implied volatility indicators coming soon The number of trading days increased. Therefore, it may be wise to stay agile. In addition, given this background, I will pay close attention to the U.S. Treasury bond yields on Friday and next week as a potential indicator of the direction of the USD/JPY price trend, because they generally have a strong direct relationship.

— Written by Rich Dvorak, Analyst for DailyFX