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USDJPY Plummets Post Soft US CPI, Potential Intervention Exacerbates Decline

FOREX
  • Despite the broad-based greenback weakness in the aftermath of the weaker-than-expected US CPI report for June, all the focus is on the Japanese Yen. Market speculation is that the Bank of Japan may have intervened in the currency given the aggressive moves following the data.
  • USDJPY had initially sold off around 90 pips following the release from 161.58 to 160.65. However, shortly after the data release, USDJPY took a very aggressive next leg lower, printing as low as 157.44 in short order before stabilising. The pair is 1.9% lower on the session.
  • Lower core yields and a positioning squeeze will have undoubtedly been working in favour of the Japanese yen, however, the relative outperformance and subsequent commentary from Japanese officials point to the high likelihood of central bank intervention. For reference, Japan’s Kanda said recent moves are not reflecting fundamentals and are not stable, without giving an explicit reference to the MOF taking action.
  • The pair has traded through the 20-day EMA and this exposed the next important support at 158.11, the trendline drawn from the Dec 28 low last year. The line has been pierced, a clear break is required to highlight a potential reversal. This would open 156.83, a Fibonacci retracement.
  • Elsewhere, the USD index sits 0.6% in the red, and the likes of EURUSD and GBPUSD are holding onto moderate gains as we approach the APAC crossover. EURGBP continues to edge further away from 0.8500, underpinning the bearish technical conditions. Below here, 0.8397, the Jun 14 low represents the bear trigger.
  • China trade data is due overnight, before US PPI and prelim UMich sentiment and inflation expectations data round off the week’s calendar.
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