USD/JPY Rally Losing Momentum

USD/JPY is on pace to post a fourth day of gains, the longest winning streak in four months. However, momentum is seen slowing since the initial surge on Monday and overhead resistance has come into play.

The currency pair briefly touched a five-week high today after US CPI data was reported to beat expectations. The pair has since retreated and is seen struggling to hold above a horizontal level at 110.63 which was support in late March and early April and has held the pair lower since the middle of August on a daily chart.

The US consumer price index gained 0.4% in August, ahead of an expected rise of 0.3% and following a gain of 0.1% in the prior month. Annually, CPI rose 1.9% while core CPI rose 1.7% and 0.2% on a month over month basis.

The dollar broadly spiked higher against its major counterparts as a result of the release but was unable to hold on to gains. The trade-weighted index (DXY) spiked up to a high of 92.66 but was unable to hold above resistance from the early August spike low of 92.55. DXY has given back a bulk of the day’s gain and is on track to post a doji candle on a daily chart to signal some exhaustion.

US equity markets were little changed with the S&P 500 last seen trading lower by a tenth of a percent, recovering some losses after a weaker open. The equity index has consolidated in a tight range over the past three sessions following a break to record highs.

The correlation between USD/JPY and the 10-year Treasury yield remains in tact and the rally in the 10-year yield is also losing steam despite hitting a three-week high today.

Volatility is expected on Friday as the latest US retail sales figures will be released in early North American trading. Retail sales were reported ahead of expectations in July with a rise of 0.6% after falling short of expectations in the prior five readings. Analysts are looking for a 0.1% gain in August.

In addition to 110.66 resistance, some further resistance is found at 110.91 as the level has held the pair lower on a 4-hour chart since the start of August. A break of the level targets 111.63. Downside support is found at the psychological 110.00 handle.

USD/JPY 4-Hour Chart

USDJPY 4H Sept 14

Jignesh is an analyst and trader, specializing in currencies and commodities. He utilizes a macro view as well as a proprietary method of pattern recognition that is based on the principles of Elliott wave. His focus is to assess strength in trends, and perceiving high potential turning points in the markets. He brings over 4 years of experience in his current role.