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US Inflation Drops Again
The Japanese Yen was the big winner from yesterday’s weaker-than-forecast US inflation reading for June. USDJPY plunged more than 4.5% on the day (around 430 pips) as US CPI was seen cooling to 3% last month, down from 3.3% prior and below the 3.1% the market was looking for. The dip in inflation marks the third consecutive monthly decline and the lowest headline CPI print in 12 months. Market pricing for a September rate cut surged higher on the back of the data, now standing at 86%, up from 70% ahead of the reading.
BOJ Tightening Expectations
The move lower in USDJPY will no doubt be welcomed by the Bank of Japan given the JPY depreciation we’ve seen over the last month. With the market widely expecting the BOJ to announce fresh tightening measures this month, the divergence in policy expectations between the Fed and the BOJ has weighed heavily on the pair. If the Fed strikes a more dovish tone at the July FOMC and the BOJ pushes ahead with QT and an additional rate-hike, this could well drive a deeper correction near-term. However, if the BOJ merely reduces bond purchases this month but refrains from hiking rates, this could see USDJPY turning higher once again.
Technical Views
USDJPY
Heavy selling in USDJPY has seen the pair breaking down below the 160.27 level this week. However, the correction lower has stalled for now into a test of the 158.28 level, with the bull channel lows remaining intact. While the channel holds, focus is on a continuation higher with 163.58 the broader target. If the channel breaks lower, 154.74 will be the next support to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.