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Tuesday, March 28, 2023

USD/JPY Loses Steam Ahead of US CPI, Key Levels to Watch

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Yen, Dollar Talking Points:

  • USD/JPY loses steam after failing to break above the 116 handle
  • Rising yields support USD strength, weighing on the safe-haven Yen
  • Key technical levels pose as an additional catalyst for price action

USD/JPY price action has temporarily stalled after bulls failed to push prices above the key psychological level of 116.000, currently holding as resistance for the imminent move.

In the wake of rising inflation, a dovish BoJ (Bank of Japan) and a more hawkish tone from the Federal Reserve has boosted demand for the greenback while pressurizing the safe-haven Yen.

Find out more about the impact of interest rates on the foreign exchange market

With higher US interest rates now priced in, the release of a positive NFP (non-farm payroll) report on Friday now places US CPI data in the spotlight. With the inflation rate YoY forecasted at 7.3% (the highest level since 1982), a higher than expected reading may result in the Fed increasing rates more aggressively and at a faster pace than was initially expected, supporting Dollar strength.

DailyFX Economic Calendar

USD/JPY Technical Analysis

After the appearance of a golden cross on the daily time-frame (in March 2021), USD/JPY bulls took control of the trend before running into a wall of resistance at the key psychological level of 116 which continues to hold bulls at bay.

As prices remain above the 50-day moving average (MA), the MACD (moving average convergence/divergence has crossed back above the zero line, a potential indication that the upward trend may continue to hold, at least for now.

USD/JPY Daily Chart

USD/JPY Loses Steam Ahead of US CPI, Key Levels to Watch

Chart prepared by Tammy Da Costa using TradingView

As bulls aim to regain control of the trend, a break above 115.700 could see prices rising towards the 116.000 handle which then opens the door for a retest of the January high at 116.369 (the 100% retracement level of the 2021 move).

However, if bears are able to exert pressure and drive prices lower, a break of 115.000 and increased selling pressure could drive price action back towards 113.957 (the Fibonacci retracement level of the 2011 – 2015) with the next level of support holding steady at the 113.000 mark.

USD/JPY Client Sentiment

USD/JPY Loses Steam Ahead of US CPI, Key Levels to Watch

USD/JPY: At the time of writing, retail trader data shows 36.26% of traders are net-long with the ratio of traders short to long at 1.76 to 1. The number of traders net-long is 0.49% higher than yesterday and 3.36% higher from last week, while the number of traders net-short is 6.40% higher than yesterday and 20.92% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/JPY-bullish contrarian trading bias.

— Written by Tammy Da Costa, Analyst for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707


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