The USD/JPY is on the defensive, having hit three-week lows earlier today and could drop below the rising channel support on weaker-than-expected US inflation and risk aversion in the stocks.
The JPY picked up a bid as the Dow Jones Industrial Average plunged more than 800 points Wednesday. As discussed last week, fast-rising bond yields are weighing over equities and pushing the USD/JPY lower.
The currency pair fell to 112.06 a few minutes before press time - the lowest level since Sept. 20 - and was last seen trading at 112.27.
As seen in the chart below, the drop to three-week lows has neutralized the immediate bullish outlook.
Daily chart
-636748181358099592.png)
The currency pair closed below the support of the previous cyclical high of 113.18 yesterday, adding credence to the bearish crossover on the MACD and the negative crossover between the 5-day and 10-day exponential moving averages (EMAs). The sell-off also pushed the 14-day relative strength index (RSI) in bearish territory below 50.00.
However, all is not lost for the USD bulls...
Long-term MAS are biased bullish: The 50-day, 100-day, and 200-day EMAs are still trending north and the stacking order of the 50-day above the 100-day, above the 200-day EMA, indicates the path of least resistance is on the higher side.
More importantly, the pair has charted higher lows along these averages since June and history could be repeating itself - the currency pair has bounced off the ascending 50-day EMA in Asia.
Rising channel is intact: As seen in the weekly chart below, the rising channel is still intact and only a close below the lower edge of the channel, currently seen at 111.57, would abort the bullish view put forward by the pennant breakout, confirmed in September.
-636748180917931903.png)
Above-forecast US CPI could boost demand for USD: September’s CPI is expected to grow by 0.2% month-on-month, the same as in August. This would put the annualized reading at a six-month low of 2.4%. An above-forecast reading could push up the 10-year treasury yield, helping the USD/JPY pair stage a solid rebound from the 50-day EMA support.
It is worth noting that the Fed's preferred measure of inflation - the core PCE - stood at 2 percent year-on-year for the fourth-straight month in August. As a result, below-forecast CPI may not derail Fed rate hike plans but would validate the argument put forward by Fed's Kaplan that inflation is unlikely to get out of hand and the bank may not need to push rates above neutral. Hence, the pair could drop to rising channel support of 111.57 if the CPI and core CPI prints below estimates and the stocks remain on the back foot.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD edges lower toward 1.0700 post-US PCE
EUR/USD stays under modest bearish pressure but manages to hold above 1.0700 in the American session on Friday. The US Dollar (USD) gathers strength against its rivals after the stronger-than-forecast PCE inflation data, not allowing the pair to gain traction.
GBP/USD retreats to 1.2500 on renewed USD strength
GBP/USD lost its traction and turned negative on the day near 1.2500. Following the stronger-than-expected PCE inflation readings from the US, the USD stays resilient and makes it difficult for the pair to gather recovery momentum.
Gold struggles to hold above $2,350 following US inflation
Gold turned south and declined toward $2,340, erasing a large portion of its daily gains, as the USD benefited from PCE inflation data. The benchmark 10-year US yield, however, stays in negative territory and helps XAU/USD limit its losses.
Bitcoin Weekly Forecast: BTC’s next breakout could propel it to $80,000 Premium
Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
Week ahead – Hawkish risk as Fed and NFP on tap, Eurozone data eyed too
Fed meets on Wednesday as US inflation stays elevated. Will Friday’s jobs report bring relief or more angst for the markets? Eurozone flash GDP and CPI numbers in focus for the Euro.