Yesterday, the US CPI report missed expectations across the board and led to a big selloff in the US Dollar. The market pricing for a 25 bps hike at the July meeting hasn’t change though as the labour market tightness and no hints of a skip or pause from the Fed speakers probably contributed to such expectation.
On the other hand, the BoJ maintains its dovish stance keeping rates at -0.10 and the YCC at the usual settings. Core inflation in Japan keeps on rising and there are only slightly tentative signs of a possible exit from the current policy. The BoJ board members keep on sounding dovish and dismissing any change at the upcoming meeting. Nevertheless, the market still sees the risk of a surprising change to the YCC policy.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that the price is now reacting to a strong support level at 137.95 where we can also find the 61.8% Fibonacci retracement level. The huge selloff since the miss in the NFP report is a bit overstretched though as we can see from the price distance from the blue 8 moving average. Generally, we can see some consolidation or a pullback into the moving average before the next move.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price is already bouncing from the support zone and if we do get a pullback, the price should rise into the black downward trendline where it crosses with the broken blue trendline and the red 21 moving average.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see the resistance zone highlighted by the blue box. That’s where the sellers should step in with a defined risk above the black trendline and target a break below the support zone and new lows towards the 130.00 handle. The buyers, on the other hand, will want to see the price breaking above the resistance zone and the black trendline to pile in and start positioning for new highs towards the 142.00 handle.
Upcoming Events
Today the market is likely to focus on the US Jobless Claims as the labour market remains tight and it may keep inflation high or even lead to another inflationary wave in the future. The market should react only to a big miss or a big beat. If the data beats expectations, we should see a pullback in USDJPY. On the other hand, if the data misses, we should see another wave of selling. Tomorrow, we wrap up the week with the University of Michigan Consumer Sentiment report.
