USD/JPY Return to Sub-140 Hinged on the US CPI Report

Highlights

• The USD/JPY suffered a fourth consecutive loss on Tuesday, ending the session at 140.356 on dovish Fed sentiment and intervention threats.
• It is a relatively busy Wednesday on the economic calendar, with machinery orders from Japan in focus early in the day.
• However, the US CPI Report will be the focal point as FOMC members talk about nearing the end of the monetary policy tightening cycle.

It is a relatively busy Wednesday session for the USD/JPY. Machinery orders from Japan will draw interest this morning. Recent economic indicators have failed to force the Bank of Japan to shift from its ultra-loose monetary policy stance. Machinery orders would need to impress to catch the eye of Bank of Japan Board Members.

Economists forecast machinery orders to increase by 1% in May following a 5.55% surge in April.

The US Session

It is a big day on the US economic calendar. The US CPI Report will be in focus this afternoon. Sticky inflation would fuel bets on a September interest rate hike. This week, less hawkish Fed commentary weighed on the greenback. Economists forecast the US annual inflation rate to soften from 4.0% to 3.1%.

However, beyond the CPI Report, investors should continue to monitor Fed chatter. FOMC Members Neil Kashkari and Raphael Bostic speak after the CPI Report. Despite the less hawkish Fed messaging, sentiment toward a July and September rate hike remained steady.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 92.4% versus 93.0% on Monday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 24.0%, up from 22.3% on Monday.

USD/JPY Price Action

Daily Chart

The Daily Chart showed a USD/JPY fall through the 141.9 – 141.2 support band and the psychological 141 to test support at the 50-day EMA (140.318). However, despite the Tuesday loss, the USD/JPY remained above the 50-day (140.318) and 200-day (136.409) EMAs, signaling bullish momentum over the near and long term.

Notably, the 50-day EMA continued to pull away from the 200-day EMA and reflected bullish momentum.

Looking at the 14-Daily RSI, the 40.22 reading signals a bearish outlook, suggesting a fall through the 50-day EMA (140.318) to target the upper level of the 139.5 – 138.8 support band of .

However, holding above the 50-day EMA would bring the lower level of the first support band into play.

4-Hourly Chart

Looking at the 4-Hourly Chart, the USD/JPY finds support at 140. The USD/JPY remains below the 50-day (142.744) and 200-day (141.466) EMAs, sending bearish signals. Significantly, the 50-day EMA narrowed to the 200-day EMA, signaling a fall through the upper level of the 139.5 – 138.8 support band.

The 14-4H RSI reading of 22.58 indicates oversold territory, with selling pressure outweighing buying pressure. The RSI aligned with the 50-day EMA, signaling a fall to sub-140 to target the 139.5 – 138.8 support band.