U.S. Inflation Disappoints-Levels For The USD/JPY

Posted Thursday, January 11, 2018 by
Shain Vernier • 2 min read

In a Wednesday live market update, I outlined several technical levels that may serve as areas of support for the USD/JPY. As of this writing, bears are pushing intraday lows. Given the underperforming group of U.S. metrics that came out a bit earlier, the USD/JPY may be poised to test these levels.

Economic Metrics

Several data releases were on tap for this morning’s U.S. pre-market session. They did not favor the USD or indices:

Event                                                      Projected/Previous                   Actual

Continuing Jobless Claims (Dec. 29)           1.915M                                        1.867M

Initial Jobless Claims (Jan. 5)                         245K                                           261K

(MoM, Dec.) PPI                                                0.2%                                         -0.1%

(YoY, Dec.) PPI                                                   3.0%                                           2.6%

(YoY, Dec.) PPI except Food & Energy          2.5%                                           2.3%

Continuing Jobless Claims fell for December, but Initial Jobless Claims were up for the first week of 2018. This discrepancy is relatively small. Nonetheless, it is the first reading of the new year and traders were looking for early signs of an economic holiday hangover.

The PPI numbers all underperformed expectations. This is an interesting development as the FED is eager to raise rates in lieu of their 2.0% inflation target being hit. Today’s numbers do not support that argument. As a result, the USD is taking it on the chin against most of the majors.

USD/JPY Technicals

The daily chart for the USD/JPY furnishes us with a comprehensive picture of the recent bearish sentiment.

USD/JPY, Daily Chart

One striking observation from the daily timeframe is today’s retracement against Wednesday’s sell-off. It did not eclipse 38%, thus this market is still technically trending down. Also, December’s low is holding up rather well. After being tested repeatedly, price has not been able to sustain beneath 111.40.

Bottom Line: The 50% macro retracement (111.02) is setting up to be tested in the near future. In the event that this scenario comes to pass, I will be taking a long from 111.06 with an initial stop at 110.74. Using a basic 1:1 R/R management plan, the trade is worth 32 pips.

As always, trade smart and keep a watchful eye on your leverage!

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