Last week, the US CPI came basically in line with expectations, but the good news is that the Core M/M reading once again printed at 0.2%. The less good news is that the US Initial Claims spiked higher, but Continuing Claims remained solid. We have already seen Claims spiking higher in the past months, so it shouldn’t be worrying yet. The long-term inflation expectations in the University of Michigan report ticked lower, so on the data side the soft-landing narrative was supported. The US Dollar, appreciated across the board as the attention may have turned already on the next data given the higher energy prices and China starting to stimulate more.
On the other hand, the BoJ kept everything unchanged as expected but implicitly tweaked the YCC policy keeping the target band unchanged but giving more flexibility with a hard cap at 1.00%. So, they basically widened the YCC band without stating it explicitly. This has created lots of volatility in the JPY, but eventually led to a fast depreciation. The BoJ has also already intervened twice to smooth the rise in yields ultimately weighing on the JPY.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY broke above the last high at 145.00. This is a key level as the BoJ in the past intervened once USDJPY rose to such highs. In fact, the 145.00-150.00 window is seen as the intervention range, so the buyers may start to get more cautious from now on.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the buyers keep leaning on the trendline. A break below this trendline should see the sellers piling in to target the 142.00 handle. We can also see that we have a divergence with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, if the price bounces on the trendline it will be counted as a pullback, but a break below it, would open the door for a reversal into the 142.00 handle.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a strong support zone at the 145.00 level as there also confluence with the 38.2% Fibonacci retracement level and the trendline. This is where the buyers should step in with a defined risk below the zone and target a new higher high. The sellers, on the other hand, will want to see the price breaking lower to pile in and target the 142.00 handle.
Upcoming Events
This week is a bit empty on the calendar front but we will still see a couple of top tier economic data. Today, we have the US Retail Sales report and strong data should support the USD, while weak data is likely to weigh on the greenback. On Thursday, we will see the latest US Jobless Claims report where a big miss is likely to trigger recessionary fears and send the USDJPY lower. On the other hand, a beat should keep supporting the soft-landing narrative and keep the bids in USDJPY coming. Finally, on Friday, we will have the Japan CPI report where a beat may strengthen the JPY as the market would expect the BoJ to let yields to rise a bit more without intervening. On the other hand, a miss should weigh on the JPY.
