Market update: hot US inflation sparks bullish breakout, forecast on USD/JPY levels
US inflation surges, treasury yields climb, bolstering dollar and propelling USD/JPY beyond 150.00 to a near three-month high.
After a subdued start to the week, USD/JPY rocketed higher on Tuesday, rallying more than 0.9% and breaking above the psychological 150.00 mark – an explosive move that saw the pair reach its highest level in nearly three months.
USD/JPY & treasury yields performance
The US dollar’s strong performance was driven by soaring US Treasury yields following hotter-than-anticipated US inflation data. For context, both headline and core CPI for January surprised on the upside, at 3.9% y-o-y and 3.1% y-o-y, respectively, two-tenths of a percentage point above expectations.
US inflation trend
Limited progress on disinflation has prompted traders to scale back, easing expectations for the year, as seen in the chart below. The possible start date of the FOMC rate-reduction cycle has also been pushed out, with market pricing now pointing to the first cut occurring at the June meeting.
2024 Fed funds futures – implied rates by month
With price pressures showing extreme stickiness, the Fed will be reluctant to start lowering borrowing costs any time soon; in fact, it may even delay its first move until the second half of 2024 to play it safe. This could translate into higher US yields in the near term, a bullish outcome for the US dollar.
USD/JPY technical analysis
USD/JPY soared on Tuesday, clearing resistance at 150.00 and hitting its highest mark since mid-November. Although the pair remains entrenched in a solid uptrend, the exchange rate is approaching levels that could make the Japanese government uncomfortable and inclined to step in to support the yen.
In the event of FX intervention, USD/JPY could take a sharp turn to the downside, reversing part of its recent advance. In this scenario, possible support zones can be identified first at 150.00, followed by 148.90. On further weakness, all eyes will be on 147.40 and 146.00 thereafter.
In the absence of currency intervention or talk of it by Japanese authorities, the bulls are likely to press on before launching an all-out assault on last year’s high around the 152.00 handle. Additional gains from this point onward could draw attention to 152.70.
USD/JPY daily chart
This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.
No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk. Please see important Research Disclaimer.
Please also note that the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Start trading forex today
Trade the largest and most volatile financial market in the world.
- Spreads start at just 0.6 points on EUR/USD
- Analyse market movements with our essential selection of charts
- Speculate from a range of platforms, including on mobile
Live prices on most popular markets
- Forex
- Shares
- Indices
See more forex live prices
See more shares live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
See more indices live prices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.