PCE Report Ahead: Yen Gains Steam on Dovish Pivot Hopes

The Japanese Yen (JPY) exhibited muted volatility against the US Dollar (USD) following the release of Japan’s November inflation data. While headline inflation dipped to 2.8% from 3.3%, the core rate remained steady at 2.5%, exceeding the Bank of Japan’s (BoJ) 2% target for the 20th consecutive month. This keeps the door open for potential policy adjustments in the future, but the BoJ’s dovish stance at its recent meeting and minutes suggests cautiousness regarding policy normalization continues to cap USDJPY gains. 

Meanwhile, the Dollar found some footing ahead of the crucial US Core Personal Consumption Expenditures (PCE) data due later in the day. The PCE is the Federal Reserve’s preferred inflation gauge, and a lower-than-expected reading could bolster bets for earlier rate cuts in 2024, further undermining the USD. However, a sticky inflation print could force the Fed to remain hawkish for longer, potentially pushing USDJPY higher. 


The 4-hour chart shows that the USDJPY pair is currently trading flat, around 142.287, having broken below a symmetrical triangle pattern. Price action is below the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), suggesting short-term bearish momentum. The RSI indicator is falling, currently at 40.34, further reinforcing the bearish bias. 

Short-term trading opportunities could arise towards the resistance level at 143.064 if the bulls can regain some control. A break above this level could signal a potential bullish reversal, targeting 143.928 and 144.819. However, a sustained move below 142.287 could pave the way for a further decline towards the initial support level at 141.650. A break below this level could expose the 140.912 support level in the near term. 


The USDJPY pair faces near-term uncertainty with mixed fundamental and technical signals. The upcoming US PCE data is key, with a lower-than-expected reading potentially accelerating USD weakness and paving the way for the JPY to reach the 141.650 support level, possibly extending towards 140.912. However, a hawkish surprise from the US could trigger a temporary rebound, with initial resistance at 143.064. 

Sources: TradingView, Reuters, Ministry of Internal Affairs & Communications, Japan, Dow Jones Newswire. 

Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst 

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