All Eyes on US Inflation Figures

For the second week in a row, the price of the USD/JPY currency pair is exposed to profit-taking sales that pushed it towards the support level 139.32. This is its lowest in a month, and stable around it at the time of writing the analysis. This occurred before announcing the most important event for the US dollar this week, the US inflation figures. I have often mentioned the possibility of exposure of currency pairs against the Japanese yen, after the latter experienced heavy losses, which brought an intervention from Japan in the markets to prevent further collapse.

The US will report another sharp drop in inflation when the latest monthly data drops today, according to Truflation, an independent tool that aggregates real-time inflation data. Downward pricing pressures are expected to be reported by several key sectors of the US economy including utilities, apparel and healthcare. Truflation therefore expects a headline reading of 3.1% although its own measure based on “real time” assessments of price movements in the economy puts the real rate of inflation lower than this.

In fact, as of July 11, 2023, the CPI truflation is stable at 2.45%.

The official US inflation reading is due at 13:30 GMT and the inflation forecast of 3.1% falls in the middle of market expectations, which range from 2.9% to 3.4%. “While inflation, as reported by the Bureau of Labor Statistics (BLS), remains above the CPI for truflation, it is encouraging to see the official number approach our own estimate,” says Oliver Rust, head of product at truflation.

He adds that a pullback to 3.1% would be another “giant leap” toward the Fed’s 2% target, down almost a full percentage point from 4% the previous month. However, the market is still looking for the Fed to raise US interest rates at least on one more occasion in July, with another hike likely in September. However, any further gains will depend on the outcome of Wednesday’s reading, which makes it significant for financial markets and the US dollar.

It is possible that the lack of fulfillment of market expectations will push the markets to bet on the possibility of only one rise, which will affect yields and the dollar as bets on a decline in movement in September. The Fed is expected to rise further thanks to labor market surveys running above consensus and official data releases from June and July that have raised concerns among policymakers that continued resilience in the labor market will maintain upward pressure on domestic inflation, requiring more rate hikes to suppress it. activity.

The US Federal Reserve now expects unemployment to end the year at 4%, down from its previous forecast of 4.1%. Experts cite some employment indicators that suggest US small and medium-sized businesses are already faltering under the pressure of high interest rates, while layoffs are on the rise.

• The downward shift of the US dollar currency pair against the Japanese yen USD/JPY requires stability below the support level of 140.00, which is what is happening now.
• A level of 137.90 is enough to change the direction of the currency pair to bearish.
• Among them, it is better to rethink buying the currency pair without taking risks, as the discrepancy between the policy of the US Federal Reserve and the Japanese Central Bank still supports the bulls in the future.

On the other hand, according to the performance on the daily chart below, the return of bulls’ control over the direction requires moving towards the resistance level 142.40 again.

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