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US Dollar Bulls Retreat After CPI: JPY Falls Ahead of BoJ Minutes

US Dollar Bulls Retreat After CPI: JPY Falls Ahead of BoJ Minutes

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Talking Points:

- Interesting patterns of weakness have developed over the past 14 hours, as a rush of Yen-weakness after yesterday’s Tokyo open leads into tonight’s release of BoJ meeting minutes from the bank’s March rate decision. USD/JPY broke above a short-term symmetrical wedge formation, but has since started to pull back as USD-weakness has enveloped the Forex market after this morning’s US CPI print.

- That US CPI print came-in at 2.2% for the sixth consecutive month of inflation at the Fed’s target of 2% or higher. This keeps the Fed in the driver’s seat for a rate hike at next week’s meeting, but USD bulls appear to be unmoved by the prospect as a pronounced move of weakness began to show after this morning’s CPI data. This morning’s price action may also help to show what’s driving the Dollar, as a bullish response did not show after CPI; indicating that the fear is an inflation overshoot to the upside that may cause the Fed to hike even-faster.

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USD Falls After CPI Prints In-Line at 2.2%

One of the more pertinent items on this week’s calendar was released earlier this morning. US CPI for the month of February came out at .2%, or 2.2% annualized; in-line with expectations and for the sixth consecutive month at the Fed’s 2% target or higher. Despite this continued strength in near-term inflation data, bulls were unable to hold support as another spate of selling enveloped the US Dollar, helping to push most major pairs like EUR/USD and GBP/USD higher. While this morning’s print keeps the Federal Reserve on pace to hike at next week’s meeting, Dollar bulls have been utterly unable to establish anything notable in the realms of strength; and this is pointing to the fact that there’s a bigger theme going on in the backdrop of the US Dollar at the moment.

US Dollar via ‘DXY’ Four-Hour Chart: Fall Below 90.00 After CPI Brings Back the Bears

us dollar price chart hourly time frame

Chart prepared by James Stanley

US inflation data remains on a steady streak that’s now seen six consecutive months at the Fed’s 2% target or higher. This puts the Fed in the driver’s seat for next week’s rate decision, which continues to carry strong probabilities of getting that next rate hike. CME Fedwatch is currently indicating an 86% probability of a move-higher at next Wednesday’s FOMC rate decision. The remainder of the year sees a bit of optimism throughout markets, as there’s a 32.6% chance of a full four rate hikes this year along with a 71.4% chance of getting three or more.

US CPI Since January, 2017: Six Consecutive Months at 2% or Higher

us cpi monthly

Chart prepared by James Stanley

USD Weakness Remains Pervasive in the Face of Consistent Inflation

Despite this continued strength in inflation, the US Dollar remains weak; and this morning may have just offered a clue as to what’s behind the drive around USD at the moment. The Dollar had found some support around the 90.00 level on DXY yesterday and even began to move-higher as we approached this morning’s release. But when that inflation figure came-out, even though the data showed continued strength, the Dollar dropped; indicating that at or slightly-above target inflation data was not that bullish driver that had helped to bring-in support.

More likely, the fear is of an inflation overshoot that may cause the Fed to hike faster than expected, which could lead to a further spike in US Treasury rates. And when this morning’s data came-out in-line with expectations, that fear was obviated and USD-bulls abandoned support as inflation printed in-line; allowing for that bigger picture, longer-term trend of weakness to remain as we near next week’s FOMC rate decision.

US Dollar via ‘DXY’ Daily Chart: Down-Trend Remains as Near-Term Range Expands

us dollar price chart daily time frame

Chart prepared by James Stanley

JPY Turns Lower Ahead of BoJ Minutes

Meeting minutes from the Bank of Japan’s March rate decision are released later tonight, expected at 7:50 ET this evening. But, ahead of that release the Yen is putting in a pronounced move of weakness, as both EUR/JPY and USD/JPY are breaking above near-term resistance levels. USD/JPY is pulling back on the heel’s of this morning’s US inflation data, but buyers appear to be trying to cauterize a bit of support at a trend-line projection that helped to make up yesterday’s symmetrical wedge.

USD/JPY Hourly Chart: Bullish Breaks Above Wedge Ahead of US CPI

usdjpy price chart hourly time frame

Chart prepared by James Stanley

We had looked into the Yen ahead of last week’s rate decision as the currency had recently started to show a spate of strength; and this concurs with Japanese inflation data has continued to run-higher. January inflation figures were released at 34-month highs in February, and this comes on the heels of another strong print indicating a bit of consistency in the data.

Japan Inflation at 34-Month High of 1.4% in January

japan monthly cpi

Chart prepared by James Stanley

The big question is whether the Bank of Japan can avoid an ECB-like scenario from last year, when the bank continued to offer a dovish outlook despite the more consistent data showing in both growth and inflation figures. This helped to lead to a run of strength in the single currency that basically lasted for the final nine months of last year and has, so far, continued into 2018. It’s only recently that we’ve started to see the initial shifts beginning to show at the ECB; and with the Yen developing considerable weakness as we came into 2018, coupled with that stronger inflation, it looked as though the BoJ might be nearing a similar spot.

USD/JPY put in a number of tests at longer-term support in late-February leading into March, and so far that support has held-up. The big question around this pair as we wade deeper into 2018 is whether this support is going to mark the low, or whether we’re just seeing a break in a trend that might put USD/JPY back towards 100.00.

USD/JPY Weekly Chart: Drive to Long-Term Support as JPN Inflation Strength Continues in 2018

usdjpy weekly chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the Euro, the British Pound or the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on our EUR/USD, GBP/USD, USD/JPY, AUD/USD and U.S. Dollar pages. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

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--- Written by James Stanley, Strategist for

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