The big miss in the US CPI report last week triggered a broad USD selloff as the market expected the Fed to be done with rate hikes after the July FOMC meeting. In fact, the market has even started to bring forward rate cuts, although it looks premature due to a strong labour market and rising consumer sentiment.
On the other hand, the BoJ maintains its dovish stance while core inflation in Japan keeps on rising. There are small signs of a possible exit from the current policy though despite the BoJ board members keep on 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 key 137.95 support has stalled the selloff in USDJPY. We have also the 61.8% Fibonacci retracement level there for further confluence. A break below this level would trigger more selling pressure and there wouldn’t be any support until the 134.00 handle.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the price action has formed an inverted head and shoulders pattern at the key support level. The buyers should lean on this level with a defined risk below the head and target a pullback into the 142.00 level. The sellers, on the other hand, will want to see the price breaking lower to pile in and extend the selloff.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor resistance zone around the 139.20 level and the broken trendline. A break above that resistance should see even more buying pressure coming in and confirm the pullback into the 142.00 level. The sellers, on the other hand, should keep on leaning on that resistance for a better risk to reward setup in case the price breaks eventually through the 137.95 support.
Upcoming Events
Today the market will be focused on the US Retail Sales report. The market will want to see if there’s weakness in consumer spending that can reduce inflationary pressures and lead to earlier rate cuts. In fact, if the data misses expectations we are likely to see more downside for the USDJPY pair, while a beat should provide a bigger pullback to the upside. The next big event to watch out for will be the US Jobless Claims on Thursday.
