Title: USD/JPY Climbs Ahead of US CPI While Bearish Patterns Dominate CAD/JPY and CHF/JPY
Author: Matt Weller, CFA, CMT (Original author)
As the foreign exchange market gears up for the highly anticipated US Consumer Price Index (CPI) report, traders are closely watching USD/JPY, CAD/JPY, and CHF/JPY for potential movements. The USD/JPY pair has been gaining traction, while downward patterns in CAD/JPY and CHF/JPY signal potential bearish momentum. These developments come amid fluctuating interest rate expectations, ongoing central bank divergence, and evolving risk sentiment in global markets.
The information below expands on the key insights originally shared by Matt Weller (source: forex.com) with added context to provide a comprehensive analysis of the prevailing market dynamics surrounding these currency pairs.
USD/JPY Edges Higher Ahead of US CPI
The USD/JPY currency pair continues to climb as the market anticipates key inflation data out of the United States. USD/JPY rose earlier this week, fueled by relatively hawkish expectations around Federal Reserve policy compared to the Bank of Japan’s (BoJ) cautious stance. This divergence remains the cornerstone for upward pressure in the pair.
Key Drivers Behind USD/JPY Movement:
– Interest Rate Differentials:
– The Federal Reserve remains data-dependent but has signaled a possibility of rate cuts later in the year if inflation cools.
– In contrast, the Bank of Japan has maintained ultra-accommodative policy, even after its shift away from negative interest rates, keeping yields suppressed.
– This creates a continued advantage for USD-denominated assets, bolstering demand for the US dollar against the yen.
– CPI Anticipation:
– U.S. CPI data is scheduled for release and is widely regarded as a crucial influencer for the Federal Reserve’s next policy moves.
– A stronger-than-expected CPI reading would likely bolster the USD further, extending upward momentum in USD/JPY.
– Technical View:
– The pair recently rebounded off the 155.00 support level, a key psychological and technical area.
– Near-term resistance resides around 157.00, with a sustained break signaling further upside potential.
– Risk Sentiment:
– Global risk appetite also impacts USD/JPY given the yen’s traditional role as a safe haven. In periods of calm or risk-on sentiment, capital tends to flow away from JPY into higher-yielding currencies like the USD.
CAD/JPY Exhibits Bearish Reversal Signs
CAD/JPY, a pair influenced by both energy prices and central bank policy expectations in Canada and Japan, currently shows signs of weakening. The currency pair has pulled back from recent highs, with technical indicators pointing to a potential bearish reversal forming.
Current Market Conditions for CAD/JPY:
– Crude Oil Volatility:
– As a commodity-linked currency, CAD often tracks movements in oil prices. Recent softness in crude oil, driven by uncertain demand outlooks and supply-side pressures, has weighed on the Canadian dollar.
– Lower oil prices reduce Canada’s trade surplus, which undermines the value of the CAD against major currencies.
– Bank of Canada Policy Outlook:
– The BoC has hinted at possible policy easing as inflation trends lower.
– This dovish tone contrasts with expectations of stable or slightly less accommodative policy from the Bank of Japan in coming months.
Technical Analysis:
– CAD/JPY recently broke below its 20-day moving average, an early indicator of a potential trend reversal to the downside.
– Chart patterns show the formation of a potential double top near the 114.00 level, increasing the risk of deeper declines ahead.
– RSI indicators are sloping lower, reinforcing the case for a bearish trajectory.
Key Technical Levels:
– Resistance: 113.80 – 114.00 (double top level)
– Immediate Support: 111.50
– Deeper Support: 110.00
CHF
Explore this further here: USD/JPY trading.