- US inflation fell in July as gasoline became cheaper.
- Bets of a 75bps rate hike from the Fed have gone down.
- A new downtrend is developing in the 4-hour chart.
Today’s USD/JPY outlook is bearish as the dollar weakens on a gloomy CPI report. As the price of gasoline fell, US consumer prices remained steady on a monthly basis in July, providing the first discernible indication of respite for Americans who have watched inflation rise over the previous two years.
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The dollar was down 1.58 percent at 132.97 yen; at one point, it fell as much as 2.3% versus the yen, the most since March 2020.
“In a backdrop where the market is becoming more content with FF (Fed funds) pricing, the yen’s worst days appear to be over,” analysts from TD Securities said in a client note. “A broad 130-135 range may be the new normal.”
The Fed has clarified that it will require multiple consecutive months of CPI growth reductions before it halts its dramatic tightening of monetary policy. It has implemented this policy to combat inflation, currently near four-decade highs.
However, following the release of Wednesday’s inflation data, traders of futures linked to the benchmark overnight interest rate of the US central bank reduced their bets that the Fed would implement a third consecutive 75-basis-point hike in September. Instead could choose to implement a half-percentage-point increase.
USD/JPY key events today
The change in the cost of manufactured items is tracked by the Producer Price Index (PPI). It serves as a leading indicator of the inflation of consumer prices, which is the primary driver of inflation. Investors expect the US PPI report later today.
Market participants are also awaiting the initial jobless claims report from the US that is expected to rise.
USD/JPY technical outlook: Break below 30-SMA signaling bearishness
The 4-hour chart shows the price attempting to break below the 132.588 critical support level after breaking below the 30-SMA. It trades below the SMA, a sign that bears have taken over. The RSI also shows a change in momentum to favor bears.
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The price might consolidate before breaking below the 132.588 support level. A break below this level would see the price retesting the next support level at 130.526.
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