The US CPI data later Wednesday could confirm if the recent rebound is a dead cat bounce or the start of a renewed leg higher in the Japanese yen at least against some of its peers.
From a monetary policy perspective, the market expects the US Federal Reserve to cut interest rates by 75 bps by the year-end after the US central bank last week indicated a pause in the tightening cycle. Fed easing expectations could keep USD/JPY’s upside capped. The Bank of Japan last month kept the ultra-loose policy settings unchanged, but with Japan’s inflation well above BOJ’s target, it could be a matter of time before the Japanese central bank tweaks policy.For more discussion on BOJ policy, see “Japanese Yen Drops as BOJ Keeps Policy Settings Unchanged: Where to for USD/JPY?”, published April 28.
USD/JPY Daily Chart
In the meantime, lingering concerns regarding the US banking sector and uncertainty with regard to the debt ceiling could keep the safe-haven-JPY bided. A key focus is now on US inflation data due later – core CPI is expected to have eased to 5.5% on-year in April from 5.6% in March. Headline CPI is expected to remain steady at 5% on-year.
While price pressures have moderated in recent months, inflation is running well above the US Federal Reserve’s 2% target.A higher-than-expected inflation print could push USD/JPY toward the top end of the recent range around 138.00. On the other hand, a softer-than-expected set of numbers could push USD/JPY toward last week’s low of 133.50.
USD/JPY 240-minutes Chart
USD/JPY: Cracks in the rebound?
On technical charts, the inverted “V”-shaped decline recently could be a sign that USD/JPY bulls are exhausted. Any break below the immediate vital floor at the April 27 low of 133.00 would pose a threat to the six-week-long rebound. This follows a failure to clear solid resistance at the March high of 138.00, roughly coinciding with the 200-day moving average. Any break below 133.00 would expose downside risks toward the March low of 129.65.
GBP/JPY 240-minutes Chart
GBP/JPY: Holding below resistance
GBP/JPY’s rally has stalled around the October high of 172.10. While this is not necessarily a bearish sign, it could be an early sign that some consolidation given the pace and the extent of the gains from March. So far, the cross has held quite strong converged support on the 4-hourly charts, including the 89-period moving average, coinciding with the lower edge of the Ichimoku cloud. Focus is now on immediate support at the mid-April high of 167.95 – the cross rebounded from this support last week. Any break below would confirm that the upward pressure had eased, opening the way toward the 200-period moving average (now at about 166.25).
EUR/JPY 240-minutes Chart
EUR/JPY: Watch support
EUR/JPY’s rally has stalled as it has run into a tough barrier at the 2014 high of 149.75. Like GBP/JPY, so far EUR/JPY has rebounded from above crucial converged support, including the 89-period moving average and the lower edge of the Ichimoku cloud on the 240-minute charts. Any break below immediate support at 145.50-146.50 (including the 200-period moving average on the 240-minute charts) would confirm that the upward pressure had faded in the short term.