On the daily chart below, we can see that the USDJPY pair has been on a steady rise since the University of Michigan report showed a big jump in long term consumer inflation expectations.
This was accompanied by several strong US economic data that made the market to rethink about its future interest rates path. The price is now trying to break above the 138.16 resistance. This level is the top of the ascending triangle pattern defined by the upward trendline where the price bounced the last time. The target on the upside would be the 142.00 handle.
The Fed, although it hinted to a pause in June, left a door open for another hike if the data suggested so. Well, the data has been doing so. Yesterday, we got good US PMIs with the manufacturing part going into contraction, but the services one showing a huge beat. The services sector makes up 80% of the US economy now, so this may keep core inflation much higher than the Fed would like and thus force them to do more.
On the 4 hour chart below, we can see that the red long period moving average is acting as a dynamic support for the rally in USD/JPY. This morning, the price has bounced from the 138.16 resistance that now may turn into support as the hot UK CPI data reverberated across the financial markets. Of course, if inflation remains above the central banks’ targets, they will be forced to do more to bring it back, but the longer it stays high, the harder it will be to bring it back later.
On the 1 hour chart below, we can see that we have a mini range between the 138.16 support and the 138.72 resistance. This setup looks also like an ascending triangle, so a break above the high should lead to more upside and that’s what the buyers are looking forward to.
On the other hand, the sellers will need a break below the 138.16 level and the more significant 137.44 swing low to start looking for a bigger correction to the downside with the trendline being the target. This scenario looks unlikely at the moment unless we start seeing a deterioration in economic data, especially with the NFP and CPI next month.
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2023-05-24 08:51:00Z
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