Tue, May 21, 2024

USD/JPY Slips 0.91% as US Core CPI Falls to 3.6%, a 3-Year Low

Wibest – Japan Yen: Japanese yen bills. USD/JPY

Quick Look:

  • Significant Decline: USD/JPY fell 0.91%, influenced by a disappointing US Core CPI report.
  • Key Support Levels: Immediate focus on 155.00; breaches may indicate further USD weakness.
  • Trading Strategy: Watch for a daily close below or above 155.00 to signal bearish or bullish positions.

The US dollar experienced a significant pullback against the Japanese yen, with the USD/JPY pair dropping by 0.91%. In a broader context, the US Dollar Index (DXY) tracks the dollar’s strength against a basket of major currencies. Besides, it fell by 0.62%. This immediate market response highlights the sensitivity of currency markets to inflation indicators. For instance, it is pivotal in shaping central bank policies and interest rate expectations.

The market’s reaction aligns with patterns observed in the fourth quarter of 2022, where similar CPI reports have historically led to a weakening US dollar. Notably, in November 2022, the Bank of Japan intervened to defend the 152.00 level before a sharp sell-off. This trend continued into 2023, with major sell-offs driving the USD/JPY pair down, eventually finding support at a critical 50% retracement level.

Bearish vs. Bullish: USD/JPY Navigates Key Levels from 150.82 to 156.28

USD/JPY pair’s immediate support is at 155.00, which bears must breach to maintain downward momentum. Other significant support levels include 154.50, a noted swing point, and 151.95, notably during the lows of a non-farm payroll (NFP) Friday. Further supports are placed at 151.57 and 150.82, with the latter being a critical resistance-turned-support level.

Should the pair break below these levels, it could signal a deeper rout in the US dollar, prompted by further signs of economic weakness within the US.

Conversely, the pair must sustain a daily close above 155.00 for a bullish reversal. This could trigger a retest of higher swing levels at 155.88 and 156.28. Long-term support remains robust at 150.87, which will hold unless decisively broken.

Trading Strategy: Watching USD/JPY Levels 155.00 for Market Cues

From a trading perspective, the current dynamics suggest heightened vigilance. For those adopting a bearish strategy, a daily close below 155.00 followed by a breakdown of subsequent support levels would be key indicators to watch. On the bullish side, securing a close above 155.00 could open up opportunities to target higher levels.

Additionally, traders should be wary of the risks associated with carrying trades, where rapid and violent reversals are possible. Setting stop losses under key support levels could help mitigate these risks.

As the market continues to digest the implications of the latest CPI data, traders and investors must stay alert to shifts in economic indicators and central bank cues. With several key technical levels in play, the USD/JPY pair remains a focal point for those looking to navigate the complexities of currency market dynamics in the coming weeks.

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