USD/JPY keeps sliding as yen touches seven-month peak; CPI, BoJ eyed

USD:

The greenback jumped higher on Friday following the US NFP release, which showed August job creation at nearly three times the expected 56K. That advance proved short-lived, however, with most of the NFP-inspired moves later fading.

The reason was that traders were looking past the payrolls figure toward CPI. Markets key on the indicators the central bank watches, and the Fed's attention is on inflation right now.

Indeed, one day prior to the NFP data, Fed's Waller said he would back holding rates steady at the next FOMC session, though a strong CPI reading could push him toward a hike.

The US CPI report is the main event this week. Barring an unexpected US-Iran breakthrough, the dollar is likely to stay largely rangebound or tilt slightly higher, with traders possibly beginning to hedge ahead of the CPI print.

If CPI comes in soft or as expected, the dollar would probably soften, since Waller has said he won't contemplate a hike without a hot CPI. On the flip side, an upside shock in core monthly inflation could spark another advance as hawkish bets are repriced.

JPY:

As for the yen, it reportedly firmed due to hawkish repricing after BoJ's Takata spoke. I'm doubtful that was behind the move, however, because Takata has long stood as the most hawkish board member and overnight index swaps show little shift in rate expectations.

The more probable driver is carry-trade deleveraging heading into the BoJ rate decision, with yen short positioning having been quite stretched.

BoJ Governor Ueda has also spoken on policy lately without adding much fresh information. In my view, his tone was somewhat less hawkish: he said the BoJ would weigh the cumulative effect of past rate increases on the economy and emphasized that rates have already been lifted five times in the current tightening cycle.

A September hike is now fully priced, so it is unlikely to have much market impact. Attention will center on forward guidance and any hints about the pace of further tightening. For USD/JPY's uptrend to reverse, there would need to be a dovish shift in Fed rate expectations or a quicker BoJ tightening path.

USDJPY TECHNICAL ANALYSIS – DAILY TIMEFRAME

USDJPY has slipped under the key 155.00 support zone and extended its decline as selling pressure picked up. The 152.30 area now stands as the major support to watch. Should price reach that zone, buyers are likely to step in with a defined risk below it and aim for a rebound toward 164.00. Sellers, meanwhile, will be looking for a breakdown to add bearish positions targeting 150.00 next.

USDJPY TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

There is now a downward trendline that defines the bearish momentum. On any pullback, sellers can be expected to use that trendline with a defined stop above it to continue toward fresh lows. Buyers, by contrast, would need a move above the trendline to build long positions and target the next major trendline near 159.00, with bullish conviction strengthening once 155.00 resistance is broken.

USDJPY TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

From a risk-management standpoint, there is little more to say: sellers have a better risk-to-reward opportunity around the trendline and 155.00 resistance, while buyers need a breakout above those levels before a reversal of the recent downtrend can be considered.

UPCOMING CATALYSTS

Thursday brings the US PPI report and the US jobless claims figures. The week wraps up Friday with the latest US CPI figures.