The USDJPY pair is at a critical level ahead of the upcoming US Consumer Price Index (CPI) report. The US Dollar has faced pressure recently due to weaker data and a stock market selloff, with the market anticipating three rate cuts by year-end.
A soft CPI report may weaken the Dollar further, but short-term appreciation could occur if equities rally. Conversely, a strong report might boost the Dollar against major currencies, although falling long-term Treasury yields could lead to depreciation as expectations for rate cuts grow.
Japanese Yen And Risk Sentiment
The Japanese Yen has been influenced more by risk sentiment and Treasury yields than domestic factors, with the market anticipating around 32 basis points of tightening by year-end. Recent data from Japan has shown softness, and Governor Ueda has indicated no immediate intention to raise rates.
On the daily chart, USDJPY is testing the 148.60 level, a point where sellers are expected to enter. A price break above this level may encourage bullish positions towards higher targets.
In the 4-hour analysis, buyers have emerged following a breach of a minor downward trendline, with the 148.60 level as a target for pullbacks. For the 1-hour chart, a minor upward trendline defines the current movement, with buyers aiming for new highs and sellers targeting a drop towards 140.00.
The market anticipates today’s US CPI report, followed by PPI and Jobless Claims data tomorrow, and concludes the week with the University of Michigan Consumer Sentiment report.
US Inflation Data And Market Volatility
The Dollar-Yen pair remains at a pivotal threshold ahead of inflation data from the United States. Recent strain on the Dollar has been linked to weaker macroeconomic figures and declining equities, with investors now expecting three interest rate reductions before the year concludes. This outlook sets the stage for heightened volatility, particularly with multiple data releases scheduled.
Should inflation come in lower than expected, the Greenback may extend its recent decline. However, a recovery could emerge in the short term if equity markets rebound, driving demand for the Dollar. On the other hand, a strong inflation reading could provide temporary strength, though falling yields on longer-maturity Treasuries might limit upside potential. With markets increasingly convinced that the Federal Reserve will ease policy, the reaction to upcoming data could be anything but straightforward.
The Yen, meanwhile, continues to move largely in response to US bond yields and overall investor confidence rather than domestic economic conditions. With about 32 basis points of tightening priced in by year-end, expectations for Japanese monetary policy remain constrained. Weak domestic data has reinforced this stance, and Ueda has given no indication that a rate hike is imminent. Consequently, the Japanese currency’s moves are being dictated more by external developments, particularly fluctuations in yields on US government debt.
From a technical standpoint, Dollar-Yen is hovering around a key resistance level at 148.60, an area where downward pressure has historically emerged. If prices push decisively beyond this threshold, momentum could favour buyers, potentially driving the pair toward higher resistance points. On lower timeframes, buying pressure has been evident after surpassing a minor downward trendline, with 148.60 acting as an initial target. Within the 1-hour structure, an upward-sloping trendline is presently guiding movement, with buyers looking to establish fresh highs and sellers eyeing a possible decline towards 140.00.
Attention now shifts to today’s inflation data, followed by producer prices and jobless claims tomorrow. The week concludes with the University of Michigan’s Consumer Sentiment release. Given the current setup, market participants should be prepared for sharp movements as fresh data reshapes expectations on monetary policy.
