The dollar-yen pair trades in red in today’s trade so far, having faced rejection at 123.96 levels as traders preferred to square-up their positions heading in to the Euro group meeting later today as technical talks on Greece are set to continue later today. Moreover, the in line with estimates Q1 final GDP print from the US released on also failed to boost the US currency. At the moment, USD/JPY trades -0.10% lower at 123.73, supported at 123.56 lows.
Markets now keep an eye on US PCE price index - the benchmark measure of inflation used by the Fed. The PCE deflator is predicted to improve from 0.1% to 0.2% year-on-year, while the core gauge is expected to remain at 1.2%. While later today, weekly jobless claims, personal spending and services PMI will also be closely watched as Fed official Powell delivers a speech at the Federal Reserve Bank of Kansas City.
A slew of favourable economic releases to be published today is expected to further confirm the strength in the US economic recovery, lifting the US dollar higher across the board. Moreover, the USD/JPY is expected to benefit from Friday’s Japanese data flow including Japan’s CPI, jobs data and household spending data.
Inflation in Japan is expected to have dissolved into nothing last month, highlighting why many economists expect the Bank of Japan (BoJ) to increase efforts to defend its inflation target before a deflationary situation reemerges.
Japan's national core CPI, which excludes prices of fresh fruit, is forecast to have made no change on an annual basis last month, while Tokyo Core CPI is expected to reflect a softer print, easing to 0.1% in May versus 0.2% reported in April. Markets are expecting discouraging economic releases from the Japan tomorrow, underscoring the hurdles faced by Bank of Japan (BOJ) to meet the2% price target. This may lend support to USD/JPY driving the major beyond 124 handle, testing near term strong resistance at 124.40 levels.
Technically, on daily chart, the USD/JPY pair trades in a symmetrical triangle formation with the upside capped by trend line resistance around 124.40 and the downside cushioned by 10-DMA located at 123.35 levels. From the chart, it can be also inferred that sellers are exhausted at lower levels, unable to break below the strong support, and hence may prefer to exit their short USD positions ahead of FOMC and BOJ monetary policy decision. It is expected that the pair is likely to reverse its downtrend and swing back higher above 124 handle and extend to 124.40 – key résistance levels should the Japanese CPI print disappoint markets, coming in below market expectations or even in line with estimates. In case the data surprise on upside, USD/JPY could see a sharp drop, knocking-off the pair back to 123 levels.
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