USD/JPY: overstretched, but rally far from over

USD/JPY Current price: 112.42

  • Yen bulls kept unwinding positions overnight, sending USD/JPY to its highest since January.
  • US June inflation expected to reaffirm Fed's tightening path.

The Japanese yen continued to be smashed during Asian trading hours, with the USD/JPY pair reaching 112.45, its highest since early January. The dollar remains strong but didn't break any relevant level against other major rivals, suggesting that speculative interest is driving the move, particularly considering the risk-averse environment triggered by an escalation in the trade war. In the meantime, risk-related sentiment has improved, with Asian and European indexes up this Thursday, although there's no guarantee that this situation will last.

The US will release today its June inflation figures, expected to have advanced modestly from May's readings. Rising inflationary pressures will support Fed's case of rising rates, but won't modify it. The core CPI is expected to have risen 0.2% MoM and 2.9% YoY. Strong figures will likely keep the pair on the bullish side, despite the upward move is overstretched.

The pair trades a couple of pips away from the mentioned multi-month high, as bulls won't give up,  suggesting that the rally will likely continue, despite the extreme overbought conditions seen in intraday technical indicators, as in the 4 hours chart, both hold in extreme levels, without directional momentum. The 100 and 200 SMA gain upward traction well below the current level, still irrelevant after a long period of consolidation. The immediate resistance is now the 112.60 region, with gains beyond it putting the pair once step closer to its target, 113.38, this year high set early January.

Support levels: 112.15 111.70 111.25

Resistance levels: 112.60 113.00 113.40

View Live Chart for the USD/JPY

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