- USD/JPY rebounds into a key resistance zone after the release of stickier-than-expected US CPI data.
- The pair has hit a tough ceiling where two major moving averages converge.
- USD/JPY is at risk of rolling over and continuing its short-term downtrend.
USD/JPY rebounds after the release of higher-than-forecast US Consumer Price Index (CPI) data for February. The data increases the probability the Federal Reserve will retain interest rates at their current relatively high levels for longer. Higher interest rates are a positive for a currency since they result in higher capital inflows.
USD/JPY has rallied off of the data and run into a substantial resistance zone made up of two major moving averages: the 50 (red) and 100-day (blue) Simple Moving Averages (SMA). Given the overall short-term trend is bearish and still assumed intact, the pullback could provide sellers with the perfect opportunity to short the currency pair.
US Dollar vs Japanese Yen: Daily chart
Impact of CPI on US Dollar could be temporary
Although the CPI data beat estimates most of the upside was mainly due to higher Gasoline prices which are seen as a variable inflationary pressure that is less likely to endure. This suggests upside for the US Dollar (USD) – and the USD/JPY – is likely to be tempered and short-lived.
The Yen is supported by expectations and rumors swirling that the Bank of Japan (BoJ) will soon raise its base interest rates from negative levels. Some even hypothesize the country could be exiting the moribund growth trend of the last 30 years. This has been responsible for the USD/JPY’s recent descent.
US Dollar vs Japanese Yen: 4-hour chart
Given the pair remains in a short-term downtrend despite the pullback of recent days, it is vulnerable to eventually rolling over and falling again.
There are no indications on the 4-hour chart above that the pullback higher has ended, however, so it remains too early to say with any certainty whether the pair will start going lower again. Some sort of candlestick reversal pattern would ideally form to warn traders of a resumption of downside, but this has not yet happened.
If the pair does revolve lower, however, it is likely to fall back down to the 146.48 March 8 lows.
If USD/JPY breaks below the 146.48 lows it will probably fall to support at the 146.22 and the 200-day SMA, followed by 145.89, the February 1 low.
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
AUD/USD faces decent resistance near 0.6650
AUD/USD added to the positive tone seen on Monday and rose further north of 0.6600 the figure on the back of the weaker Dollar and positive developments in the commodity complex.
EUR/USD targets the 1.0880 zone ahead of US, EMU data
EUR/USD kept the bullish bias well in place for the second session in a row, leaving behind the 1.0800 barrier and the key 200-day SMA (1.0790) prior to key data releases in the EMU and US on Wednesday.
Gold regains its poise on broad US Dollar’s weakness
Following Monday's decline, Gold stages a rebound toward $2,350 on Tuesday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.5% after April producer inflation data, allowing XAU/USD to hold its ground.
Bitcoin price defends $61K with GameStop stock resurgence likely to generate renewed appetite for risk assets
Bitcoin (BTC) price tests the patience of traders as it glides along an ascending trendline on the four-hour time frame. Meanwhile, the GameStop saga that has resurfaced after three years distracts the market.
Is the US Dollar headed for a crash?
Ahead of the US CPI & Retail Sales report, I breakdown how to combine forex fundamentals with technicals to determine whether we've seen a US dollar top?