USD/JPY extends rally on hot CPIThe USD/JPY extended its rally following the release of hotter-than-expected US CPI data, which fuelled a surge in bond yields and strengthened the dollar. Headline CPI rose 0.5% month-over-month, surpassing the expected 0.3%, while Core CPI climbed 0.4% versus the 0.3% forecast. On an annual basis, CPI reached 3.0% and Core CPI hit 3.3%, both above expectations. This reinforced market sentiment that the Federal Reserve will delay interest rate cuts, pushing US 5- to 10-year yields at least 10 basis points higher. As a result, traders increased their bets on further USD/JPY gains. The market will now focus on the second day of Powell’s testimony, with PPI data and retail sales still to come later in the week.
From a technical standpoint, USD/JPY has shown resilience, rebounding from support at 151.00 and breaking above the key 200-day moving average near 152.50/60. The pair has cleared resistance at 153.70-154.00, and if it holds above the 200-day average, it could extend its advance toward the significant 155.00 level. However, a failure to maintain this breakout could see support tested back at 153.70, with further downside levels at 152.50/60 and 151.00. With the bullish momentum reinforced by strong CPI data and higher yields, USD/JPY traders will closely watch price action determine if the uptrend can sustain.
By Fawad Razaqzada, market analyst with Forex.com
