USD/JPY shrugs off the surprisingly soft US CPI as Middle East crisis keeps inflation risks alive
USD:
The US dollar weakened across the board yesterday following the
surprisingly soft US core inflation figures. The data triggered a dovish
repricing in interest rate expectations with traders scaling back significantly
the probabilities for a rate hike in July.
The Fed is now expected to raise interest rates in September at the
earliest with a fully priced hike in December. The reaction to the soft CPI was
short-lived though given the US-Iran crisis in the background as that keeps
inflation risks skewed to the upside.
The US dollar should remain broadly supported but it might need some new
catalyst to extend gains into new highs. In the meantime, the price action
might remain mostly rangebound.
JPY:
On the JPY side, not much
has changed fundamentally other than the renewed US-Iran conflict and the
closure of the Strait of Hormuz that is sending oil prices higher and
reigniting inflation worries.
The Japanese officials
threat to target speculators with stealth interventions has helped to slow down
the depreciation, but that might not stop the yen from falling into new lows
versus the US dollar if the current US-Iran situation drags on for much longer or
even worsens.
USDJPY TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDJPYcontinues to consolidate
below the cycle high around the 162.85 level with a bullish tilt. If we were to
get another pullback into the 160.50 support, we can expect buyers to step in
with a defined risk below the support to keep targeting new highs. The sellers,
on the other hand, will look for a break to pile in for a drop into the major
upward trendline around the 158.00 handle.
USDJPY TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see we have a minor support zone around the 161.50 level where the price got
rejected from several times in the past days. The buyers will likely continue
to step in around the support to keep targeting new highs, while the sellers
will look for a break to extend the pullback into the 160.50 support next.
USDJPY TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we
have a minor upward trendline defining the current bullish momentum. We can
expect the buyers to continue to lean on the trendline with a defined risk
below it to keep pushing into new highs, while the sellers will want to see the
price breaking lower to target a drop back into the 161.50 support. The red
lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we have the US
PPI report. Tomorrow, we get the US Retail Sales and Jobless Claims data. On
Friday, we conclude the week with the University of Michigan Consumer Sentiment
survey.
This article was written by Giuseppe Dellamotta at investinglive.com.