The major JPY currency pairs dropped after the Consumer Price Index data, a key indicator of inflation, showed a slowdown in consumer prices. This brought the Fed closer to its 2% target and led to discussions of a rate cut in September. The USDJPY is currently recovering after yesterday's daily range of 433 pips. Traders are expected to keep a close eye on the currency pair due to the upcoming release of significant economic data, including the Producer Price Index, which could impact currency valuations.
Overview
The major JPY currency pairs dropped after the Consumer Price Index data, a key indicator of inflation, showed a slowdown in consumer prices. This brought the Fed closer to its 2% target and led to discussions of a rate cut in September. The USDJPY is currently recovering after yesterday's daily range of 433 pips. Traders are expected to keep a close eye on the currency pair due to the upcoming release of significant economic data, including the Producer Price Index, which could impact currency valuations.
Upcoming High Impact Economic Events
Friday 12:30 pm (GMT+0): Core PPI m/m (USD)
Friday 12:30 pm (GMT+0): PPI m/m (USD)
Friday 02:00 pm (GMT+0): Prelim UoM Consumer Sentiment (USD)
Technical Analysis
In December 28, an upward move started, bouncing off the lows of 140.249 which led to higher exchange rates, reaching an all-time high of 161.951 on July 3. However, a bearish reversal formation on the price chart, known as a failure swing in technical analysis, paved the way for a decline. Specifically, the price failed to surpass the peak at 161.951 and dropped below the trough of 160.262. Despite this, the 50-period Exponential Moving Average (EMA) and the Momentum oscillator do not support the negative outlook. Prices remain above the EMA, and the Momentum oscillator registers values above the 100 baseline.
Potential Upside Targets
If the bulls manage to maintain control of the market, traders may consider the following three potential upside targets:
160.662: The initial price objective is seen at 160.662, corresponding to the swing low formed on July 8.
161.951: The second price objective is 161.951, representing the year's highest exchange rate.
163.352: An additional resistance level is determined at 163.352, corresponding to the R3 resistance level estimated using the weekly Pivot Point method.
Potential Downside Targets
If the bears manage to take control of the market, traders may find potential opportunities in the following four downside targets:
157.426: The initial downside target is set at 157.426, corresponding to yesterday's low.
155.421: The second level of support is estimated at 155.421, representing the 423.6 percent Fibonacci Extension drawn from the swing low of 160.662 to the swing high of 161.805.
153.331: The third line of support is calculated at 153.331, corresponding to the 38.2 percent Fibonacci Retracement of the upward move.
151.857: An additional line of support is estimated at 151.857, representing an internal line running through highs and lows.
Fundamentals
The U.S. Bureau of Labor Statistics reported yesterday that the Consumer Price Index for All Urban Consumers (CPI-U) decreased by 0.1 percent on a seasonally adjusted basis, following no change in May. The decrease suggests a potential slowdown in inflation, which could influence the Fed's decision on a rate cut. The all items index saw a 3.0 percent increase over the past 12 months before seasonal adjustment.
The index for all items, excluding food and energy, increased by 0.1 percent in June, marking the smallest rise since August 2021. Additionally, the shelter index saw a 0.2 percent increase in June.
Conclusion
In summary, the most recent Consumer Price Index data shows a slowdown in inflation, bringing the Federal Reserve closer to its 2% target. This has led to discussions about a potential rate cut in September. As a result, there has been increased volatility in major JPY currency pairs. USDJPY, for example, has seen a significant daily range of 433 pips but is currently recovering. Traders will be keeping a close eye on upcoming economic data, including the Producer Price Index, to see how it will impact currency valuations. Despite a recent bearish reversal, the USDJPY pair is still uptrend.