USD/JPY holds above December low as yen surge pauses for breath

Japan’s economic data continues to garner interest on renewed BOJ-hike bets. Tokyo’s inflation – a decent lead for nationwide prices – has risen to a 21-month high of 3.4% y/y, which is likely to see nationwide CPI increase further above 32% y/y. We may also see services price inflation increase today, which could keep USD/JPY under pressure. Bloomberg currently estimates an 83.3% chance of two more hikes arriving by December, which could be brought forward and strengthen the yen should services prices heat up further today.

Also take note of US data overnight. While the Richmond manufacturing services and consumer confidence reports tend not to be big market movers, they might be so this time around if they point to pockets of weakness. On Friday, a weak manufacturing PMI report from S&P global for the US weighed on Wall Street and sparked fresh debate over Fed cuts.

Economic events in focus (AEDT)

10:50 – JP corporate services price index
00:00 – ECB’s Schnabel speaks
01:00 – US house price indices
02:00 – US consumer confidence, Richmond manufacturer and shipments
05:00 – FOMC member Barkin speaks

Several yen pairs are trading around support levels, which increases the odds of a retracement before their assumed bearish trends resume. EUR/JPY and USD/JPY are holding above their December lows, while GBP/JPY has seen two false breaks of it. The selloff on CHF/JPY has also stalled around 166, jus above its November low. I’m not looking for large bounces on any of these pairs, but given the quieter calendar heading into inflation reports from the US and Japan this week, some mean reversion higher could initially be due.

USD/JPY technical analysis

A small bullish candle on Monday snapped a 3-day losing streak for USD/JPY, its second such bearish sequence in eight days. Monday’s low escaped a retest of the December low, and a bullish divergence has formed on the daily RSI (2) in the oversold zone to warn of a potential bounce.

Despite the potential for bullish mean reversion, an eventual break beneath the December low remains my core view. I also suspect bears will be waiting to fade into moves around the 150 and 151 handles in anticipation of a break of the December low. Also note the weekly pivot point at 105.19.

-- Written by Matt Simpson

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