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Talking Points:

- The March US Consumer Price Index is due on Wednesday, April 10 at 12:30 GMT.

- The inflation report on Wednesday will only underscore the belief that the Fed is due to keep policy on hold for the foreseeable future.

- Retail traders continue to sell US Dollar rallies versus the British Pound and the Euro.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

04/10 WEDNESDAY | 12:30 GMT | USD Consumer Price Index (MAR)

The March US Consumer Price Index report is due to show a rebound in price pressures, in line with the continued rebound in energy prices as well as the improved streak of US economic data (Atlanta Fed GDPNow Q1’19 growth estimate is now 2.1%, up from 0.2% in the second week of March). Nevertheless, the readings are due short the Federal Reserve’s medium-term target of +2%.

According to Bloomberg News, headline CPI is expected in at +1.8% from +1.5%, and Core CPI is due in to hold at 2.1% (y/y). The inflation report on Wednesday will only underscore the belief that the Fed is due to keep policy on hold for the foreseeable future; Fed funds futures are pricing in a 39% chance of a 25-bps rate cut in October and a 56% chance of a 25-bps rate cut by December.

Pairs to Watch: DXY Index, EURUSD, USDJPY, Gold

USDJPY Price Chart: Daily Timeframe (December 2017 to April 2019) (Chart 1)

usdjpy price chart, usdjpy price forecast

Price action over the past week has remained constructive, seeing USDJPY break the downtrend from the March swing highs. The uptrend is facing its first test as the calendar turns to the second week of March, as price settled at 111.70 – a tick higher than the March 20 bearish outside engulfing bar high at 111.69; a break down through the low at 110.80. Traders should watch for continuation into the March at 112.14; failure below the daily 21-EMA at 111.09 would suggest the breakout attempt failed.

IG Client Sentiment Index: USDJPY (April 5, 2019) (Chart 2)

ig client sentiment index, igcs, usdjpy price chart, usdjpy price forecast

Retail trader data shows 37.1% of traders are net-long with the ratio of traders short to long at 1.7 to 1. The number of traders net-long is 8.8% lower than yesterday and 19.0% lower from last week, while the number of traders net-short is 4.5% lower than yesterday and 36.6% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USDJPY prices may continue to rise. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bullish contrarian trading bias.

FX TRADING RESOURCES

Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

To contact Christopher, email him at cvecchio@dailyfx.com

Follow him in the DailyFX Real Time News feed and Twitter at @CVecchioFX