USD/JPY falls to its lowest level since mid-June ahead of US CPI

• USD/JPY records its fourth consecutive day of losses, falling near 140.30.
• US headline CPI is expected to decline to 3.1% YoY.
• The USD Index, DXY, fell to its lowest level since May.

On Tuesday, the USD/JPY continued to lose ground amid the broad USD weakness. Ahead of the release of US Consumer Price Index (CPI) data on Wednesday, investors expect inflation to decelerate while hawkish bets on the Federal Reserve remain steady. On the JPY’s side, monetary policy pivot expectations allow the Yen to advance.

Markets focus on the US’s CPI on Wednesday

In the US, the focus is on Wednesday's Consumer Price Index (CPI) data. The headline figure is expected to drop to 3.1% in June YoY from its previous 4%, while the Core measure to 5% from its last figure of 5.3%. As Federal Reserve officials sounded hawkish on Monday, markets believe a 25 basis points (bps) hike in the July meeting is a done deal. Moreover, the odds of another hike this cycle stand at 35%, but those expectations may change according to the outcome of the inflation data in Wednesday’s session.

On the Japanese side, while most market expectations point towards the Bank of Japan (BoJ) maintaining its current monetary policy during its July meeting, economists at Rabobank anticipate that the central bank may provide some indication regarding potential adjustments to the policy. This signal could come alongside an updated macroeconomic forecast. The recent wage increase in Japan during May has garnered significant attention from the BoJ, making it a crucial aspect to monitor in the upcoming data releases. 

In that sense, Wednesday’s Core Machine Tool orders from May and Producer Price Index from June will be closely watched.

USD/JPY Levels to watch

According to the daily chart, the technical outlook for the USD/JPY suggests strong bearish momentum in the short term. However, indicators in the 4-hour chart point at oversold condition, suggesting an upwards correction may be in the horizon. Returning to the daily chart, the Relative Strength Index (RSI) shows a steep negative slope in negative territory while the Moving Average Convergence Divergence (MACD) prints rising red bars.

Support levels: 139.90,139.30,139.00.
Resistance levels: 141.25, 142.00, 142.85 (20-day Simple Moving Average).

 

USD/JPY Daily chart