USD/JPY Rangebound with US Data Likely to Provide Near-Term Direction

Teaser: USD/JPY continues to struggle for any clear direction. US CPI data due tomorrow is likely to provide some guidance ahead of the FOMC on Wednesday.

KEY POINTS:

Most Read: USDJPY, EURJPY and NZDJPY Support Different Technical Scenarios

USD/JPY FUNDAMENTAL BACKDROP

USD/JPY continued its advance in the Asian session before a modest pullback as the European session began pushed the pair below the 137.00 handle. The dollar index began the week on the front foot as anticipation builds before the much-awaited FOMC meeting on Wednesday.

The US dollar index has benefitted from recent data releases including Fridays PPI print. The data releases have resulted in market participants expecting a bullish statement from Fed Chair Powell even if the FED only hikes by 50bps. US inflation data (CPI) is due out tomorrow which may provide more guidance as to the Feds thinking ahead of the FOMC meeting. A rise in inflation for November may add strength to the US dollar and add a further challenge for the Federal Reserve.

The Bank of Japan meanwhile remains steadfast on its position regarding rate hikes which continues to hamper the Yen. Over the weekend BoJ policymaker Hajime Takata stated that the Japanese economy is not yet in a position to end yield curve control. The Central Banks policy remains tied to wage growth with Governor Kuroda looking for wage growth to exceed inflation.

A quiet day ahead on the calendar front before tomorrow’s US inflation print which could very well have increased. We have seen stellar job numbers, wage growth and a rise in the PPI which hint at a higher inflation print. Will a potential increase in inflation be enough for the Fed to deliver a 75bps hike? Only time will tell….

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From a technical perspective, USD/JPY is trying to gain acceptance above the 137.00 handle with the 200-day MA just resting below current price. USDJPY has been consolidating for the last 5 days with a break higher looking all the more likely this week as we have a host of key data releases. We do have the descending trendline which may come into play should the pair push toward the 138.00 level which could provide resistance.

USD/JPY Daily Chart – December 12, 2022

Source: TradingView

IG CLIENT SENTIMENT DATA: MIXED

IGCS shows retail traders are currently SHORT on USD/JPY, with 57% of traders currently holding short positions. At DailyFX we typically take a contrarian view to crowd sentiment, and the fact that traders are short suggests that USD/JPY may continue rise.

Written by: Zain Vawda, Markets Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda