Across the Pacific, US S&P Global Services PMI and Michigan Consumer Sentiment Index numbers will fill an economic data void as the US government shutdown enters day 24.
Economists forecast the Services PMI to fall from 54.2 in September to 53.5 in October.
A sharper drop toward the 50 neutral level would signal a marked loss of economic momentum, given that services contribute around 80% to US GDP. Additionally, traders should consider the employment and prices sub-components. Lower prices, job cuts, and slower services sector activity would support a more dovish Fed rate path, pushing USD/JPY toward 150.
Conversely, a pickup in services sector activity, higher prices, and rising employment could temper bets on multiple Fed rate cuts. A less dovish Fed rate path may send USD/JPY toward the August high of 153.274.
While the services sector data will be key, the Michigan Consumer Sentiment Index could also move the dial. According to preliminary data, the Michigan Consumer Sentiment Index slipped from 55.1 in September to 55.0 in October.
A downward revision could signal a pullback in consumer spending, dampening demand-driven inflation. A softer inflation outlook would support multiple Fed rate cuts and a USD/JPY fall toward 150. On the other hand, a higher reading could challenge bets on multiple Fed rate cuts, sending the pair toward 153.274. While the consumer sentiment figures will draw interest, the Services PMI will have more impact on the USD/JPY pair.
USD/JPY Scenarios: Services PMI Data, BoJ Uncertainty, and Dovish Fed Bets
Market scenarios for USD/JPY will hinge on central bank rhetoric and trade headlines.
Bearish USD/JPY Scenario: hawkish BoJ commentary, stronger PMI data, or escalating US-China trade tensions could push USD/JPY toward 150.
Bullish USD/JPY Scenario: dovish BoJ commentary, weaker PMI data, or easing US-China trade tensions could send USD/JPY toward 153.274.
