USD/JPY: slips below 113 handle, but needs lower lows in this descending channel

• USD/JPY has had a pop to the downside buy buyers are protecting the 113  handle.
• The pair fell to 112.92 in Tokyo. 112.87 was the low overnight although was not low enough to print a lower low below 112.82 within this descending channel.
• The DXY has been testing the trend line support and actually slipped below it in early Asia, currently printing at 95.60.  

USD/JPY has been set back in its recovery attempts to 113.39 with  a rebound in Italian markets and the euro. Also, elevated Brexit sentiment created a risk-on appetite.  US  yields also edged off their recent highs whereby US 10Y yields fell some 3bps, driving the 2s-10s spread back to 31.5 bps.  

US CPI is key

Eyes are now on US PPI tonight and indeed US CPI coming up today and on Thursday, U.S. time.

Analysts at Nomura noted the key US CPI this week offered a preview (Key event for the week: US CPI – Nomura):

Key Quotes:

“CPI (Thursday): We forecast 0.2% (0.244%) m-o-m increase in core CPI inflation for September following a 0.082% advance in August. On a 12-month change basis, our forecast would be equivalent to 2.304% advance in September, up slightly from a 2.190% pace in August. The relative softness in core CPI inflation in August was mostly concentrated certain volatile core goods prices.”

USD/JPY levels

• Support levels: 112.80 112.50 112.20
• Resistance levels: 113.40 113.75 114.10

Valeria Bednarik, Chief Analyst at FXStreet, explained that the pair has spent the day hovering around a mild-bullish 100 SMA in its 4 hours chart, losing ground below it in the American afternoon:

“Technical indicators resume their declines well into negative territory following a correction of oversold conditions, in line with further declines, particularly on a break below Monday’s low at 112.81, with scope then to  extend its decline down to 112.00/20.”