USD/JPY Price Forecast: 200-day SMA holds the key for bulls; focus remains on US CPI

The USD/JPY pair attracts some buying during the early European session on Thursday and builds on this week's rebound from the 146.30 area, or the vicinity of the August monthly swing low. The US Dollar (USD) climbs to a fresh weekly high amid some repositioning trade ahead of the crucial US consumer inflation figures. Furthermore, the Japanese Yen (JPY) continues with its relative underperformance in the wake of heightened domestic political uncertainty, which could give the Bank of Japan (BoJ) more reasons to go slow on interest rate hikes. This, along with a generally positive risk tone, undermines the JPY's safe-haven status and offers additional support to the currency pair.

The downside for the JPY, however, seems cushioned on the back of the growing market acceptance that the BoJ will stick to its policy normalization path. In fact, the BoJ sees the US trade deal removing some risks to growth and paving the way for steady progress toward the inflation target. Moreover, data released earlier this Thursday showed that Japan's producer price index (PPI) climbed 2.7% in August compared to the same time period last year, marking a slight increase from 2.6% in the previous month. This follows an upward revision of Japan's Q2 GDP growth figures earlier this week, which, along with positive real wages and a rise in household spending, backs hawkish BoJ expectations.

In contrast, traders ramped up their bets for three interest rate cuts by the Federal Reserve (Fed) this year after data released on Wednesday pointed to a surprise pullback in US inflation. The US Bureau of Labor Statistics (BLS) reported on Wednesday that the US PPI declined to 2.6% on a yearly basis in August from 3.3% in the previous month. Other details of the report showed that the core PPI, which excludes food and energy prices, increased 2.8% on a yearly basis, marking a sharp deceleration from 3.7% in July and missing consensus estimates of 3.5% by a big margin. This fueled speculations about the possibility of a more aggressive policy easing by the Fed, which might cap the USD and the USD/JPY pair.

Traders now look forward to the crucial US Consumer Price Index (CPI) report, due later during the North American session. The headline CPI is expected to rise at an annual rate of 2.9% in August, up from 2.7% in the previous month. Meanwhile, the core CPI inflation, which excludes the volatile food and energy categories, is forecast to come in at 3.1% year-over-year (YoY), matching July's rise. Markets could lean toward a 50 bps rate reduction in September if the CPI comes in below expectations. This could trigger a fresh leg down in the USD and weigh on the USD/JPY pair. Conversely, the reaction to a strong print is likely to be limited as a 25 bps Fed rate cut on September 17 is nearly fully priced in the markets.

USD/JPY daily chart

Technical Outlook

Meanwhile, this week's goodish rebound from the vicinity of the August swing low constitutes the formation of a double-bottom near the 146.30-146.20 region. Given that oscillators on the daily chart have again started gaining positive traction, some follow-through buying beyond the 148.00 round figure should pave the way for additional gains. The USD/JPY pair might then climb to the very important 200-day Simple Moving Average (SMA), currently pegged near the 148.70 region. A sustained move beyond the said barrier will confirm a fresh breakout and lift spot prices beyond the 149.00 mark, towards retesting the monthly swing high.

On the flip side, the Asian session low, around the 147.30-147.25 region, could act as immediate support ahead of the 147.00 round figure. A convincing break below the latter would expose the 146.30-146.20 pivotal support, which, if broken decisively, might be seen as a fresh trigger for the USD/JPY bears. Spot prices might then accelerate the downfall further towards the 145.35 intermediate support en route to the 145.00 psychological mark.