USD/JPY probes key resistance ahead of US CPI
• All eyes on US inflation data at 12:30 GMT
• SVB fallout likely to limit dollar’s upside potential
• USD/JPY testing ~134.10 pivotal level
The USD/JPY has bounced back after a sharp three-day sell-off. The recovery is due, above all, to profit taking from oversold levels ahead of US CPI. Unless inflation data comes in much stronger, the UJ could resume lower from around current levels as it tests a key resistance zone, and in light of the recent developments with bond yields plunging and financial stability risks rising.
As per the chart, the USD/JPY was testing key resistance around 134.10 area which was previously support. If resistance holds here, then the first downside objective would be the liquidity resting underneath Monday’s low at 132.28. Thereafter, the 61.8% Fibonacci retracement level would come into focus at 131.30.
The bearish bias would be invalidated in the event of a rally above the shaded region on the chart on a daily closing basis today or tomorrow. For that to happen, either US inflation will have to be much stronger-than-expected, or the mood towards financial markets improve markedly following the SVB fallout.
For more on SVB’s collapse, please refer to my colleague Joshua Warner’s explainer article HERE describing how it all happened and what does it mean for financial markets.
In term of US CPI, well, my colleague Matt Weller has written a great preview right HERE. As per Matt’s article, the key takeaways are:
• The upcoming US CPI report could tip the scales for the Fed’s highly-anticipated interest rate decision next week.
• The report comes as traders sift through the confusion and uncertainty following the collapse of Silicon Valley Bank and fears of contagion in the banking sector.
• Rate expectations could still change dramatically if the CPI report misses expectations of a 6.0% y/y increase.
Please refer to the above articles for more.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
• SVB fallout likely to limit dollar’s upside potential
• USD/JPY testing ~134.10 pivotal level
The USD/JPY has bounced back after a sharp three-day sell-off. The recovery is due, above all, to profit taking from oversold levels ahead of US CPI. Unless inflation data comes in much stronger, the UJ could resume lower from around current levels as it tests a key resistance zone, and in light of the recent developments with bond yields plunging and financial stability risks rising.
As per the chart, the USD/JPY was testing key resistance around 134.10 area which was previously support. If resistance holds here, then the first downside objective would be the liquidity resting underneath Monday’s low at 132.28. Thereafter, the 61.8% Fibonacci retracement level would come into focus at 131.30.
The bearish bias would be invalidated in the event of a rally above the shaded region on the chart on a daily closing basis today or tomorrow. For that to happen, either US inflation will have to be much stronger-than-expected, or the mood towards financial markets improve markedly following the SVB fallout.
For more on SVB’s collapse, please refer to my colleague Joshua Warner’s explainer article HERE describing how it all happened and what does it mean for financial markets.
In term of US CPI, well, my colleague Matt Weller has written a great preview right HERE. As per Matt’s article, the key takeaways are:
• The upcoming US CPI report could tip the scales for the Fed’s highly-anticipated interest rate decision next week.
• The report comes as traders sift through the confusion and uncertainty following the collapse of Silicon Valley Bank and fears of contagion in the banking sector.
• Rate expectations could still change dramatically if the CPI report misses expectations of a 6.0% y/y increase.
Please refer to the above articles for more.
-- Written by Fawad Razaqzada, Market Analyst
Follow Fawad on Twitter @Trader_F_R
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