The USD/JPY pair has been trading in a narrow range of 134.69-135.36 for the past three days, as the market awaits the release of the US consumer price index (CPI) for April on Wednesday. The pair is currently hovering around the 135.00 mark, with a slight bearish bias.
What’s driving the USD/JPY pair?
The Japanese yen has been supported by some hawkish comments from the Bank of Japan (BoJ) Governor Kazuo Ueda, who said on Tuesday that the central bank will end its yield curve control policy and start shrinking its balance sheet once inflation expectations rise to a sustainable level. He also said that Japan’s economy was recovering and inflation expectations were high.
The US dollar, on the other hand, has been underpinned by a rebound in the US Treasury bond yields, which eased some concerns about a possible banking crisis in the US. The Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS) showed on Monday that the tightening of credit conditions was mainly due to the Fed’s rate hikes rather than severe banking sector stress.
However, the upside for the greenback seems limited by the Fed’s less hawkish stance, as the central bank signaled last week that it will adopt a more data-dependent approach to raising rates further and may pause its tightening cycle soon. Moreover, the market is pricing in some chances of rate cuts later this year, amid signs of slowing economic growth and subdued inflation.
What to expect from the US CPI report?
The US CPI report, due on Wednesday at 12:30 GMT, will be a key event for the USD/JPY pair, as it will influence the market expectations about the Fed’s next policy move. The consensus forecast is for a 0.4% month-on-month increase in the headline CPI and a 0.2% rise in the core CPI, which excludes food and energy prices. On an annual basis, the headline CPI is expected to accelerate to 2.1% from 1.9%, while the core CPI is expected to remain steady at 2%.
A stronger-than-expected CPI report could boost the US dollar and push the USD/JPY pair higher, as it would increase the odds of further rate hikes by the Fed and reduce the chances of rate cuts. Conversely, a weaker-than-expected CPI report could weigh on the US dollar and drag the USD/JPY pair lower, as it would reinforce the case for a pause or a reversal in the Fed’s tightening cycle.
Technical outlook for USD/JPY
From a technical perspective, the USD/JPY pair is trading below its 20-day and 50-day moving averages (MAs), which are converging around 135.50 and act as a dynamic resistance level. The pair is also facing a horizontal resistance at 135.36, which is the upper boundary of its recent consolidation range.
On the downside, the pair has a support at 134.69, which is the lower boundary of its consolidation range and also coincides with its 100-day MA. A break below this level could open the door for further losses towards 134.00, which is a psychological level and also aligns with its 200-day MA.
The relative strength index (RSI) is hovering around 50, indicating a lack of clear momentum in either direction. The stochastic oscillator is moving lower from overbought territory, suggesting some bearish pressure in the near term.
Key levels to watch
Resistance: 135.36 (range high), 135.50 (20-day and 50-day MAs), 136.00 (round number)
Support: 134.69 (range low and 100-day MA), 134.00 (psychological level and 200-day MA), 133.50 (previous low)