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FX Week Ahead: November US Inflation & USD/JPY Rate Forecast

FX Week Ahead: November US Inflation & USD/JPY Rate Forecast

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US Inflation (CPI) Report Overview:

  • The November US inflation (CPI) report will be released on Friday, December 11 at 13:30 GMT. A stabilization in price pressures is anticipated.
  • USD/JPY rates have been trading choppily as both the US Dollar and Japanese Yen have been under pressure as safe havens in a world of rising risk appetite.
  • Retail trader positioning suggests a bullish bias to USD/JPY rates, which have been constrained by a symmetrical triangle since early-November.

12/11 FRIDAY | 13:30 GMT | USD US Inflation (CPI) Report (NOV)

The November US inflation (CPI) report will be released on Friday, December 11 at 13:30 GMT. According to a Bloomberg News survey, astabilization in price pressures is anticipated with the headline inflation rate due in at 1.1% y/y from 1.2% y/y in October, while core inflation is due in unchanged at 1.6% y/y.

Marginally weaker price pressures may not do much to move the needle on Federal Reserve monetary policy, which remains exceptionally accommodative. To this end, the Fed intends on keep interest rates low through 2023. If inflation were to rise in the coming months, the greatest boost could come from the next tranche of US fiscal stimulus.

Pair to Watch: USD/JPY

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USD/JPY rates have slowly broken down through symmetrical triangle support, with the exit beginning in early-November. The loss of the uptrend dating back to the March and September swing lows proved magnetic for some weeks. Now, USD/JPY rates are consolidating in a short-term symmetrical triangle just below said uptrend, trading around both the 23.6% Fibonacci retracement from the 2018 high/2020 low range at 104.35 and the 23.6% Fibonacci retracement from the 2020 high/low range at 103.79.

Momentum has been flat in recent days, if not slightly tilted bearish. USD/JPY rates remain below the daily 5-, 8-, 13-, and 21-EMA envelope, which itself is in bearish sequential order. Daily MACD is trending flat below its signal line. However, Slow Stochastics are rising back towards their median line, another indication price action has been listless. A breakout of the symmetrical triangle that’s formed since early-November would be the best clue as to the next directional move in USD/JPY rates.

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USD/JPY: Retail trader data shows 65.92% of traders are net-long with the ratio of traders long to short at 1.93 to 1. The number of traders net-long is 4.20% higher than yesterday and 4.54% lower from last week, while the number of traders net-short is 16.01% higher than yesterday and 1.01% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall.

Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.

Read more: FX Week Ahead: December ECB Rate Decision & EUR/USD Rate Forecast

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

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.