USD/JPY was relentlessly sold-off ahead of US open and slumped to fresh one-month lows at 119.30, as the US dollar was heavily offered across the board ahead of the crucial US CPI data followed by manufacturing PMI and home sales numbers. The US dollar index which measures the relative performance of the greenback against six major currencies, dropped to fresh four day lows at 96.81, recording a -0.29% loss on the day . Meanwhile, USD/JPY currently trades near fresh monthly lows at 119.38 levels, -0.29% lower on the day, inching gradually towards the important support zone at 50-DMA located at 119.11 levels.
Technically, on the daily chart, USD/JPY has given a channel break down below the trend line support of 119.56 levels. The pair now trades around 119.44 levels and holds well above the 50-DMA support located at 119.11 levels. The daily RSI standing at 44.75 has inched further in to the bearish terrain, indicating further room for declines.
On the basis of the daily chart formation, it seems the pair is set to test the crucial 50-DMA on the release of below estimates US CPI data. February's US inflation data is expected to reveal an annual rate of -0.1%, while consumer prices excluding energy and food are forecast to rise 1.7% y/y. Decline in consumer prices will push the 2-yr treasury yields currently standing at 0.56% further down on the back of delayed interest rate hike expectations to September rather than in June, which may eventually drag the greenback lower.
Fed Chair Janet Yellen said during her press conference last week.
The Fed needs to be "reasonably confident" that inflation will eventually hit 2% over time before it will start the rate normalization process. Yet as of right now, inflation is likely "to remain quite low because of the depressing influence of energy price declines and the dollar."
Moreover, both the US manufacturing PMI for March and February’s new home sales report are also expected to worsen, which may also weigh on the US dollar, knocking-off USD-JPY sub 119 barrier.
Overall, USD/JPY is expected to extend its downside momentum on bearish US macro data and may test 50-DMA at 119.11 levels. USD bears are likely to dominate below 50-DMA which may drown the pair below 119 handle for a likely test of 100-DMA located at 118.75 levels. Conversely, if the US CPI, manufacturing PMI and housing data comes in line with expectations or beats expectations, USD/JPY is expected to rebound to test 5-DMA located at 120 levels and beyond that doors would open for next resistance at 20-DMA located at 120.40 levels.
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