Fundamental analysis of USD/JPY

The USD/JPY pair fell significantly during the European session, reaching the 140.400 level. The drop followed a sharp decline in the US Dollar Index (DXY), which is currently near 101.74 as investors anticipate a Fed rate hike.

 Investor uncertainty stems from the potential impact of a Fed rate hike and tightening credit policies of commercial banks on corporate results. The preliminary report indicates a significant decline in core inflation and a slight decline in core CPI. Core price pressures, driven primarily by a strong labor market supporting strong retail demand with competitive wages, are of paramount importance to policymakers in the US. Markets continued to evaluate comments from FOMC members, especially those that suggested that the Fed's policy tightening phase is coming to an end. Despite the ongoing discussion of these factors and interventions, the divergence in monetary policy appears to favor the dollar.

 FRB Cleveland President Loretta Mester recently commented on the resilience of the economy and continued high inflation. The Bank of Japan (BoJ) is expected to leave policy unchanged at its July meeting, but high inflation expectations are raising hopes for an adjustment in the ambassadorial regime. These speculations may provide some support to the Japanese Yen ahead of the BoJ meeting. 

Technical analysis and scenarios:

The technical analysis of the USD/JPY pair indicates a bearish bias due to several factors. The pair is trading at 140.440, below the middle Bollinger Bands at 142.500, and is trending lower. The price range is widening, indicating increased volatility and possible continuation of the bearish trend.

Main scenario (SELL)

Recommended entry level: 140.000.

Take Profit: 138.870.

Stop Loss: 140.500.

Alternative scenario (BUY)

Recommended entry level: 141.300.

Take Profit: 142.000.

Stop loss: 140.500.