As the new week unfolded, the USDJPY currency pair began with a cautious step, responding to Japan’s latest inflation update. Year-over-year inflation eased from 2.6% to 2.2%, marking its lowest point since March 2022. Core inflation followed suit, sliding from 2.3% to 2%, aligning closely with the Bank of Japan’s target, albeit slightly higher than the anticipated 1.8%.
With inflation inching nearer to the target threshold, optimism brewed among investors, speculating on the possibility of the BoJ adjusting its ultra-loose monetary policy in the near future. This sentiment lent support to the Japanese Yen. Meanwhile, the US dollar took a modest retreat, awaiting the pivotal release of the PCE Price Index later in the week. This highly anticipated data could potentially reshape expectations regarding the Federal Reserve’s timeline for interest rate cuts.
Technical
On the 4H chart, an ascending triangle has emerged, with the price action testing the dynamic support at the 25-SMA (green line). The 25-SMA trades slightly above the 50-SMA (blue line), confirming the presence of bullish momentum in the shorter term. However, a breakdown could be on the cards if the price moves lower in the upcoming session.
If the price moves below the dynamic support of the triangle, it could face a tough challenge at 150.253, where the 50-SMA converges with the Fibonacci midpoint. The 61.8% Fibonacci golden ratio lies not far below, at 150.117, and these levels could provide the support necessary to retest the breakdown level. However, if the price moves lower, it could reach 149.822 and 149.506 in the upcoming sessions.
Conversely, if a breakout fails to occur, the upward momentum could continue to test the triangle’s resistance at 150.828. This has proven to be a challenging barrier, but if the price moves higher, it could trigger a breakout toward 151.136 and 151.426 in the upcoming sessions.
Summary
The USDJPY currency pair maintained its uptrend despite a strengthening Yen following the latest inflation data from Japan. However, the price is teasing a triangle breakdown near the 25-SMA, which could be triggered in the upcoming sessions.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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