- The recent selling of the USD/JPY currency pair increased its pace during last Friday's session, as it collapsed towards the support level of 142.06.
- It closed the week's trading around it, which is the lowest for the currency pair in two weeks.
- The selling came after strong and sharp gains for the currency pair, which reached the resistance level at 145.06, its highest in eight months.
The clear discrepancy between the soft policy of the Japanese central bank and the strict US central bank policy to contain record inflation remained an important factor for strong bullish control. The US job numbers, which were announced at the end of last week, brought strong losses to the US dollar against the rest of the other major currencies.
In general, the dollar/yen pair has now declined to trade several levels below the 100-hour moving average line. As a result, the currency pair is now trading deep in the oversold levels of the 14-hour RSI.
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Then this week, US inflation is likely to continue to ease in June, but a key measure of underlying price pressures remains at an uncomfortable pace that will tip the Fed toward resuming rate hikes this month. A government report next Wednesday is expected to show that the US Consumer Price Index rose 3.1% from a year ago, the smallest advance since March 2021, largely due to lower prices at the pump for gasoline. Such a result would leave the core consumer price index down nearly 2 percentage points in just two months.
However, once volatile energy and food costs are stripped away, core CPI is expected to rise 5% from last year. While that would be the smallest annual increase since late 2021, it's still more than double the Fed's target, based on a different inflation measure. The reading of US inflation for the month of June comes after a number of recent reports confirming the resilience of the economy, despite the rise in interest rates by 5 percentage points over the past year. The US jobs report on Friday showed a healthy, albeit smaller-than-expected, rise in payrolls as well as stronger wage growth. Meanwhile, Fed officials scheduled to speak this week include Neil Kashkari, Christopher Waller, Loretta Mester and Mary Daly. Investors will analyze their comments for clues about their willingness to resume raising US interest rates. The Fed's Beige Book will also be released on Wednesday.
Technical analysis of the USD/JPY pair:
In the near term, and according to the performance on the hourly chart, it appears that the USD/JPY currency pair is trading within a sharp descending channel formation. This indicates a strong short-term bearish bias in market sentiment. Therefore, the bears will be looking to extend the current decline towards 141.84 or below to support 141.57. On the other hand, bulls will target potential rebounds around 142.37 or higher at the resistance 142.61.
On the long run, and according to the performance on the daily chart, it appears that the USD/JPY is trading within the formation of an ascending channel. This indicates a significant long-term bullish bias in market sentiment. Therefore, the bulls will target the long-term profits at around 144.69 or higher at the resistance at 146.77. On the other hand, the sellers, bears will be looking to pounce on the gains at around 139.50 or below at the support at 137.17.
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