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  • USD/JPY rebounds sharply and extends daily gains, not affected by lower US yields.  
  • Japanese yen tumbles across the board as stocks rally.  

The USD/JPY pair dropped immediately after the release of a lower-than-expected US CPI reading. It fell to 111.35 and then rebounded sharply, breaking on top of 111.60. The greenback also climbed above intraday August highs and reached 111.90, the highest since August 1.  

As of writing was trading at 111.80, up more than 50 pips from yesterday’s close and headed to the highest close in almost two months.  The rally of the pair took place despite the slide of the US dollar. The DXY fell to 94.60, a new weekly low. The greenback lost strength in the market after US inflation data and amid risk appetite.  

The CPI rose below expectations in August. Yesterday the PPI showed a decline in the index and also weakened the greenback.  “In many ways, the current inflation environment is just what the Fed wants to see. Core inflation has slowly moved back up to levels consistent with the FOMC’s target. Yet there are few signs of inflation blowing far past the Fed’s comfort zone and forcing the Fed to raise rates faster than expected; inflation expectations””especially longer-term views””have been little changed”, wrote Wells Fargo’s analysts.  

Equity prices in the US opened higher boosted by the positive sentiment regarding the US economy with a slowdown in inflation and evidence that the labor market remains solid. The optimism eased after President Trump mentioned that “we are under no pressure to make a deal with China, they are under pressure to make a deal with us. Our markets are surging, theirs are collapsing. We will soon be taking in Billions in Tariffs & making products at home.”  

USD/JPY Levels to watch

To the upside, the key short-term resistance is the 112.00 area,  followed by 112.20 and 112.65. From a technical perspective a daily close above 112.00 would signal more gains ahead in the short term. On the flip side, support now might be seen at 111.65 (Sep 11 low), 111.45 and 111.15/20.  

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