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USD/JPY bears are eyeing a breakout, but USD/JPY bulls are holding firm ahead of US CPI
The USD/JPY exchange rate is pressing below a crucial trend line support and horizontal structure. In order to avoid capitulation risks ahead of the US CPI data, bulls must break into the 147s, while bears must go below 146.66.
Throughout the majority of Wednesday's trade, USD/JPY has been consolidating around the bull cycle lows, stalling around the Federal Open Market Committee minutes that failed to make a substantial dent in the bullish trend. As Tokyo begins, USD/JPY is trading between a low of 146.66 and a high of 146.91.
Wednesday marked a new 24-year high for the dollar against the yen, despite elevated levels that have led some analysts to anticipate central bank intervention. On September 22, when the dollar's value was 145.90 yen, Japan conducted its first yen-buying intervention since 1998. Nonetheless, traders were given the go-ahead to sell the yen as Bank of Japan Governor Haruhiko Kuroda pledged to maintain a loose monetary policy to promote economic recovery. Kuroda stated that the economy might gain from the weak yen.
As a result of dovish undertones in the minutes of the most recent Federal Reserve meeting, the dollar reduced its gains. In the minutes, "several participants noted that... it would be important to calibrate the pace of further policy tightening with the goal of mitigating the risk of significant adverse effects on the economic outlook," which initially lowered the 10-year yield and weighed on the dollar, allowing the yen to strengthen to the day's low before weakening again. Overall, the Fed is viewed as remaining dedicated to raising interest rates to reduce inflation, which continues to boost the usd.
In addition, the dollar was strong following the release of data at the start of the day indicating that US producer prices rose more than anticipated in September. The producer price index for final demand increased by 0.4%, exceeding expectations of a 0.2% increase. In the 12 months leading up to September, the PPI grew 8.5%, following an increase of 8.7% in August.
The upcoming day will be dominated by US inflation figures. According to experts at TD Securities, the Consumer Price Index likely remained strong in September, with the series reporting another high 0.5% MoM increase. Although we anticipate a dramatic decline in the price of pre-owned automobiles, it is likely that housing inflation remained elevated. Importantly, gas prices likely provided additional respite for the headline figure, falling approximately 5% month-over-month. Our MoM predictions imply 8.2%/6.6% YoY price growth for total/core goods.
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