Fundamental analysis of USD/JPY
The USD/JPY currency pair continued its bearish trajectory for the fifth consecutive session on Wednesday, falling below the key support level of 140.000 and trading around 139.600, mirroring the movements of the US Dollar Index (DXY). On a positive note, the S&P500 index futures rose in Asian trading, boosted by positive market signals on Tuesday.
Investor optimism was fueled by growing expectations that the Federal Reserve may move to record high interest rates sooner than expected. However, the U.S. Dollar Index, which had previously benefited from cautious market sentiment on aggressive Fed policy tightening, quickly corrected to 101.48. The reason for this correction is that the market expects the Fed to raise interest rates only one more time as part of its quantitative policy, which will put pressure on the index. Looking ahead, a major market event is expected with the release of the US Consumer Price Index (CPI) data for June next year. Monthly core inflation is expected to fall to 0.2% in June, which will be welcomed by the Fed, while year-on-year core inflation is expected to fall to 4.9%, indicating a trajectory towards the desired target.
Meanwhile, the Japanese yen strengthened despite disappointing producer price index data for June. According to the data, prices were expected to rise by 0.1%, but they fell by 0.2%. In addition, the producer price index for the full year fell to 4.1% from the forecast and previous reading of 5.1%.
Investors will also keep an eye on the U.S. consumer price index report as lingering inflation is likely to fuel speculation of a rate hike in September. Despite less aggressive Fed statements this week impacting the US dollar, expectations for rate hikes in July and September remain unchanged. It is important for investors to keep an eye on further comments from the Fed, especially FOMC members Neel Kashkari and Rafael Bostic, who will speak after the CPI report is released.
Technical analysis and scenarios:
According to the technical analysis of the USD/JPY pair, it is currently trading at 139.670, slightly above the lower support level of 138.870. The Bollinger Bands indicators are showing a downtrend, with the price range widening and the price falling into the lower range of the indicator. This, and the fact that the USD/JPY pair has been losing for five consecutive trading sessions, suggests a continuation of the bearish trend in the short term.
Main scenario (SELL)
Recommended entry level: 138.870.
Take Profit: 137.920.
Stop Loss: 139.500.
Alternative scenario (BUY)
Recommended entry level: 140.280.
Take Profit: 140.790.
Stop loss: 140.000.