USDJPY Technical Analysis – Focus on the US CPI

Fundamental Overview

The USD has been under some pressure in the last couple of weeks as the weaker US data and the selloff in the US stock market increased the expectations for more easing by year-end with the market now fully pricing in three rate cuts.

Today we get the US CPI report and it could be a tricky one for the US Dollar. Logically one would expect more weakness for the greenback in case we get a soft report, but we might even see a counterintuitive short-term appreciation on a relief rally in equities.

A hot report, on the other hand, might give the greenback a boost against the major currencies on risk-off flows although even here we could see the US Dollar depreciating amid falling long term Treasury yields with the market expecting the Fed holding off from cutting even in the face of more economic slowdown and eventually leading to more aggressive cuts.

On the JPY side, the data recently started to come out on the softer side and Governor Ueda today didn’t sound like someone who’s in a hurry to raise rates amid some uncertainty. The Japanese Yen in the past couple of weeks has been supported across the board more by the risk-off sentiment and falling Treasury yields rather than domestic fundamentals.

The market is pricing in around 32 bps of tightening by year-end with traders awaiting more data on the inflation front to increase the expectations for another rate hike.

USDJPY Technical Analysis – Daily Timeframe

On the daily chart, we can see that USDJPY is now testing the key 148.60 level. This is where we can expect the sellers to step in with a defined risk above the level to position for a drop into the 140.00 handle next. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the trendline.

USDJPY Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that once we broke above the minor downward trendline, the buyers piled in to target a pullback into the 148.60 level. There’s not much else we can add here as the sellers will look for short opportunities around the 148.60 level and the major trendline, while the buyers will look for upside breakouts to target new highs.

USDJPY Technical Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we now have a minor upward trendline defining the current pullback. The buyers will likely keep on leaning on the trendline to push into new highs, while the sellers will look for a break lower to increase the bearish bets into the 140.00 handle. The red lines define the average daily range for today.

Upcoming Catalysts

Today we have the US CPI report. Tomorrow, we get the US PPI data and the US Jobless Claims figures. On Friday, we conclude the week with the University of Michigan Consumer Sentiment report.

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