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FOREX: USDJPY Extends Recovery From Key Support, US CPI Ahead

FOREX
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  • While an overall bearish technical theme remains intact for USDJPY, reinforced by last week’s move lower, today’s bounce is notable and places the focus on the first resistance point of 144.23, the Sep 5 high. Above here, firm resistance is seen around the 20-day EMA, at 145.78 today, and a clear break of this average would signal scope for a stronger correction.
  • Upward pressure on core yields and the broad-based bid for the dollar have provided a solid base for USDJPY to start the week, and as such, the pair has extended its intraday recovery to well over 1% off the overnight lows. The bid for major equity benchmarks underpins the strong price action and as noted, the early August low and key support at 141.70 has helped to cap the most recent Yen rally.
  • US inflation data on Wednesday and also PPI on Thursday could prove more of a deciding factor for Fed pricing following the mixed payrolls report. Fed Funds have recently been pricing more than 35bp of cuts for the Sep 18 decision, but we expect we’d need to see a sizeable core CPI miss and a return of particularly weak CPI core services ex-housing for the Fed to seriously consider a 50bp cut. Note that the inflation data will land firmly within the Fed’s blackout period ahead of the Sep 17-18 meeting.
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  • While an overall bearish technical theme remains intact for USDJPY, reinforced by last week’s move lower, today’s bounce is notable and places the focus on the first resistance point of 144.23, the Sep 5 high. Above here, firm resistance is seen around the 20-day EMA, at 145.78 today, and a clear break of this average would signal scope for a stronger correction.
  • Upward pressure on core yields and the broad-based bid for the dollar have provided a solid base for USDJPY to start the week, and as such, the pair has extended its intraday recovery to well over 1% off the overnight lows. The bid for major equity benchmarks underpins the strong price action and as noted, the early August low and key support at 141.70 has helped to cap the most recent Yen rally.
  • US inflation data on Wednesday and also PPI on Thursday could prove more of a deciding factor for Fed pricing following the mixed payrolls report. Fed Funds have recently been pricing more than 35bp of cuts for the Sep 18 decision, but we expect we’d need to see a sizeable core CPI miss and a return of particularly weak CPI core services ex-housing for the Fed to seriously consider a 50bp cut. Note that the inflation data will land firmly within the Fed’s blackout period ahead of the Sep 17-18 meeting.