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   “¢   Disappointing US CPI figures dampens Fed rate hike prospects and weigh on USD.
   “¢   Risk-on mood dent JPY’s safe-haven status and helps limit any meaningful slide.

The USD/JPY pair trimmed some of its early gains and quickly retreated around 25-pips from session tops, touched in the last hour.

The pair stalled its intraday positive momentum and once again met with some fresh supply near the 111.65 region following the release of softer-than-expected US consumer inflation figures.  

In fact, the headline CPI rose by 0.2% m/m in August, as against 0.3% expected, and the yearly rate ticked lower to 2.7% from 2.9% previous. Adding to the disappointment, the core CPI, which excludes food and energy prices, recorded a modest 0.1% m/m rise, with the yearly rate unexpectedly ticking lower to 2.4% during the reported period.  

This against the backdrop of Wednesday’s dismal PPI figures indicated that the recent upturn in inflation might have eased, at least temporarily, and could dampen prospects for a faster Fed monetary policy tightening cycle. The same was evident from a sudden fall in the US Treasury bond yields and eventually exerted some fresh downward pressure on the US Dollar.  

Despite the pull-back, the pair has still managed to hold with modest daily gains and was being supported by the prevalent risk-on mood, triggered by easing US-China trade tensions following overnight reports that the US is proposing a new round of trade talks with China.

Technical levels to watch

Any subsequent fall is likely to find support near the 111.25-20 region and is closely followed by the 111.00 handle, below which the pair is likely to accelerate the slide towards 100-day SMA support near the 110.60 region. On the flip side, the 111.65 zone now seems to have emerged as an immediate strong hurdle, which if cleared should assist the pair to surpass the 112.00 handle and aim towards testing the 112.15-20 supply region.

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