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USD/JPY March Range in Focus- Sticky Japan CPI to Undermine BoJ Bets

USD/JPY March Range in Focus- Sticky Japan CPI to Undermine BoJ Bets

David Song, Strategist

Talking Points:

- USD/JPY Continues to Carve Higher Highs & Lows; BoJ Bets Mired by Sticky Japan CPI.

- USDOLLAR Extends Advance Despite Mixed Data- Lackluster 4Q GDP Report to Keep FOMC on Hold.

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USD/JPY

USD/JPY Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • USD/JPY may continue to work its way back towards the top of the recent range amid the near-term series of higher highs & lows, but the stickiness in Japan’s Consumer Price Index (CPI) may encourage the Bank of Japan (BoJ) to endorse a wait-and-see approach at the April 28 interest rate decision as the core-core rate of inflation is anticipated to uptick to an annualized 0.8% from 0.7% in January.
  • Even though BoJ Governor Haruhiko Kuroda stands ready and willing to further support the real economy, the central bank meeting minutes suggests there’s a growing dissent within the committee amid the mixed views amongst central bank officials following the 5-4 vote to implement the negative-interest rate policy (NIRP).
  • Will keep a close eye on the Relative Strength Index (RSI) as it comes up against the bearish trendline carried over from the beginning of the year, with a topside break in the oscillator raising the risk for a move back towards the March high (114.55).
USD/JPY SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the FX crowd remains net-long USD/JPY since January 29 following a brief flip in retail sentiment, but the figure remains off of near-term extremes after climbing to +3.00 in February.
  • The ratio continues to narrow ahead of the holiday weekend as it currently sits at +1.88, with 65% of traders long, but the recent developments may largely be a function of thin market conditions as open interest stands 4.8% below the monthly average.

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USDOLLAR(Ticker: USDollar):

IndexLastHighLowDaily Change (%)Daily Range (% of ATR)
DJ-FXCM Dollar Index12005.6212006.9911942.560.43101.91%
USDOLLAR Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The USDOLLAR continues to gain ground and largely preserves the upward trend from earlier this week, but the final 4Q Gross Domestic Product (GDP) report may undermine the near-term advance in the greenback should the figures face an unexpected downward revision especially as the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, is expected to hold steady at an annualized 1.3%.
  • The ongoing batch of mixed data prints may keep the Fed on the sidelines at the April meeting as St. Louis Fed President James Bullard, a 2016 voting-member, argues that the central bank should not hike rates if inflation expectations weaken further.
  • Will continue to watch the topside targets following the close above 11,951 (38.2% expansion) to 11,965 (23.6% retracement), but need to see a similar dynamic around 12,050 (78.6% retracement) to 12,082 (61.8% expansion) area to negate the risk of a head-and-shoulders top.
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--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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