USD/JPY: risk aversion rules but USD/JPY waiting for US inflation

USD/JPY Current price: 110.94

  • Japanese Q2 GDP estimate beat market's forecast bounced strongly.
  • US inflation seen steady in July, the release could be overshadowed by risk-related sentiment.

Risk aversion dominates the financial world, and the collapse of the Turkish Lira is behind the move. The lira lost over 9% against the greenback, adding to the roughly 30% decline of the currency since the year started. Is highly unusual that a minor currency can affect a major one, such as we are seeing today. The problem is Europe. Reports indicating that the ECB officials are concerned about European banks' exposure to Turkey sent the EUR/USD pair to fresh yearly lows, while local shares´ markets also collapsed. At the time being, the DAX is at 1-month low, accumulating a whopping 200 points' daily decline. US Treasury yields followed suit, with the yield on the benchmark 10-year Treasury note down to 2.89%.

The USD/JPY pair fell to 110.60 before bouncing some, little changed for the day ahead of the release of US inflation figures. Japanese data released overnight was generally encouraging as preliminary Q2 GDP beat market's forecast of 0.3% by printing 0.5%. That came after a -0.2% in the previous quarter. Additionally, July Domestic Corporate Goods Price Index was up 3.1% YoY, better than the 2.9% expected, and a small light at the end of inflation tunnel.

US inflation is up next. July inflation is not expected to impress, as the core readings are seen rising 0.2% MoM an 2.3% YoY, matching June's final readings. Numbers that won't take the Fed away from their gradual path of rates hikes. Indeed, risk sentiment is overshadowing fundamentals, and market's reaction to the report could be limited.

In the meantime, the pair is short-term bearish according to intraday technical readings, as in the 4 hours chart, lower lows have helped the 100 SMA accelerate lower, now about to cross below the 200 SMA, both above the current level, a sign of increasing bearish interest. Technical indicators head south within negative levels, although with limited downward strength at the time being. The 110.50/60 region is a key support, while sellers are around 111.20. The break of any of those level should indicate some follow-through ahead of the weekly close.

Support levels: 110.55 110.20 109.80

Resistance levels: 111.20 111.60 111.90

View Live Chart for the USD/JPY


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