Yesterday’s US CPI report came in below expectations across the board and led to a heavy sell-off in the US dollar. Market prices were unchanged for a 25 basis point rally at the July meeting although labor market tightness and no hints of skipping or pauses from Fed speakers may have contributed to such expectations.
On the other hand, the Bank of Japan maintains its dovish stance while keeping interest rates at -0.10 and YCC at the usual settings. Core inflation in Japan continues to rise and there are only somewhat tentative signs of a possible departure from the current policy. BoJ board members continue to express caution and reject any change in the upcoming meeting. However, the market still sees the risks of a sudden change in GCC policy.
Technical analysis of the US dollar against the Japanese yen – daily time frame
USDJPY daily
On the daily chart, we can see that the price is now interacting with a strong support level at 137.95 where we can also find the 61.8% Fibonacci retracement level. The massive sell-off since the error in the NFP report has somewhat outgrown it although we can see from the price distance from the blue 8 moving average. In general, we could see some consolidation or a pullback to the moving average before the next move.
Technical analysis of the US dollar against the Japanese yen – time frame 4 hours
USDJPY 4 hours
On the 4 hours chart, we can see that the price is already bouncing from the support area and if we get a pullback, the price should rise to the black downtrend line where it intersects the broken blue trend line and the red 21 moving average.
Technical analysis of the USDJPY – 1 hour time frame
USDJPY 1 hour
On the hourly chart, we can see the resistance area marked with the blue box. This is where sellers should step in with defined risk above the black trendline, aiming for a break below the support area and fresh lows towards the 130.00 handle. On the other hand, buyers will want to see the price break above the resistance area and the black trend line of accumulation and start setting new highs towards the 142.00 handle.
Upcoming events
Today the market is likely to focus on the US Jobless Claims as the labor market remains tight and could keep inflation high or could lead to another inflationary wave in the future. The market should only react to a big mistake or a big win. If the data exceeds expectations, we will see a pullback in USDJPY. On the other hand, if the data misses, we should see another wave of selling. Tomorrow, we close out the week with the University of Michigan Consumer Sentiment report.