The Dollar/Yen is hovering near a 20-year high on Wednesday, ahead of a key reading on inflation that should provide clues on how aggressive the Federal Reserve will be in tightening monetary policy.
After hitting a two-decade low on Monday, the Japanese Yen continues to get some respite from a pause in the recent relentless rise in the benchmark 10-year U.S. Treasury yield. But this could be merely the calm before the storm ahead of the U.S. Consumer Price Index (CPI) report, due to be released at 12:30 GMT.
At 06:21 GMT, the USD/JPY is trading 130.319, down 0.120 or -0.09%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $71.82, down $0.10 or -0.15%.
Traders Eyeing US CPI Data
Investors will be closely watching the April U.S. consumer price index reading later on Wednesday for any signs inflation may be starting to cool, with expectations calling for an 8.1% annual increase compared with an 8.5% rise recorded in March.
The so-called Core CPI report is expected to show a 0.4% rise in April, up slightly from the previously reported 0.3%. The April monthly number translates to a 6% year-over-year reading.
A miss to the downside could temporarily soothe the markets, encouraging long Dollar/Yen traders to trim positions and sending the Forex pair sharply lower. A miss to the upside will drive the USD/JPY to a new 20-year high.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. However, momentum may be getting ready to shift to the downside following the confirmation of Monday’s closing price reversal top.
A trade through 131.348 will negate the chart pattern and signal a resumption of the uptrend. A move through 126.945 will change the main trend to down.
The minor range is 126.945 to 131.348. Its pivot at 129.147 is the first downside target and potential support.
The second minor range is 123.471 to 131.348. Its 50% level at 127.410 is the next potential support.
The short-term range is 121.284 to 131.348. If the main trend changes to down then look for the selling to possibly extend into its 50% level at 126.316.
Daily Swing Chart Technical Forecast
The direction of the USD/JPY on Wednesday is likely to be determined by trader reaction to 130.575.
Bullish Scenario
A sustained move over 130.575 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into 131.348. Taking out this level could trigger an acceleration to the upside.
Bearish Scenario
A sustained move under 130.575 will signal the presence of sellers. If this generates enough downside momentum then look for a break into the first pivot at 129.147.