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  • USD/JPY has traded within thin ranges on Thursday given a lack of volume in the market with the US away for Thanksgiving holiday.
  • USD/JPY is hovering just above support at 104.21 ahead of Tokyo Consumer Price Inflation numbers.

USD/JPY has traded within very thin 104.20-104.35 ranges on Thursday, amid a broadly rangebound feel to FX market trade as a result of low volumes given US Thanksgiving holiday. Amid a somewhat risk-off feel to trade (US equity futures moved a little lower before futures markets closed at 18:15GMT), USD/JPY has maintained a somewhat downwards bias, but not enough to push the cross below support at 104.21. As things stand right now, USD/JPY trades at 104.25 with losses of just under 20 pips or 0.2% on the day.

USD/JPY awaits Japanese inflation numbers

At 23:30GMT, Tokyo Consumer Price Inflation (CPI) data is released; Core CPI is expected to show the YoY rate of price growth drop to -0.7% in November from -0.5% in October. Amid depressed domestic and global economic conditions given the Covid-19 pandemic, the chances of inflation turning positive anytime soon seem slim.

Things might pick up by the second half of 2021, as many developed nations such as Japan reach herd immunity against the virus. But the feeling is that in the long-run, the chances of inflation reaching the Bank of Japan’s 2% target are pretty slim. Indeed, the last time the bank its inflation target was back in 2014 and the bank has largely failed to do so since the mid-1990s. Thus, today’s data is likely to serve as the usual monthly reminder of the BoJ’s impotence, and JPY traders are likely to look the other way.

However, with US participants largely absent from the market for the rest of the week, USD/JPY might struggle to find inspiration from other sources. Things might pick up during the Asia session, which also boasts Chinese Industrial data. But by the time the European’s begrudgingly arrive on Friday, things will likely settle down again for the rest of the week.

USD/JPY supported above 104.21 and forming a flag

USD/JPY, though seeing a mild downside bias on Thursday, has remained supported above the 104.21 level, which is the 19 November high. However, prices are currently being squeezed by a flag formation. Thus, a breakout in the near future is possible in either direction.

In case USD/JPY breaks to the south, that would bring into play a test of Tuesday’s low at 104.14, then below it the psychological 104.00 level, as well as lows of the week around 103.70 below that. If USD continues its sustained weakening trend, then such a move is likely.

If the USD bulls pick up again, then an upside break of the flag could bring into play a test of the pair’s 21-day moving average at 104.43. Above that, this week’s highs come into play at just under 104.80 and then there is the 50DMA at 104.90.

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