US Dollar Analysis: USD/JPY Tests 30+ Year Highs Ahead of US CPI

CPI and US Dollar Key Points

• Traders and economists expect headline CPI to decelerate to 0.1% m/m (3.3% y/y). The “Core” CPI figure is expected to print unchanged at 0.3% m/m (4.1% y/y).
• With the decline in the inflation rate seemingly stalling, a higher-than-expected inflation reading is likely to be more impactful to markets.
• If USD/JPY can break conclusively above 152.00, it could clear the way for a bullish continuation toward as high as 155.00.

When is the US CPI Report?

The October US CPI report is scheduled for release on Tuesday November 14 at 8:30am ET.

US CPI Report Expectations

Traders and economists expect headline CPI to decelerate to 0.1% m/m (3.3% y/y). The “Core” CPI figure is expected to print unchanged at 0.3% m/m (4.1% y/y).

US CPI Report Preview

While the average American can hardly set foot outside their front door without hearing about the scourge of high inflation, the official data shows that the year-over-year inflation rate has been more than cut in half over the last year.

That said, for forward-looking policymakers and traders, the reason for concern is that the moderation in price pressures seems to be slowing, if not stopping altogether. As the chart below shows, the so-called “Core” CPI, which excludes more volatile food and energy prices, is poised to print its 3^rd straight month of 0.3% growth:

Source: BLS, Bloomberg

After the FOMC meeting earlier this month, most traders believe that the US central bank is done raising interest rates for this cycle, but in order for Jerome Powell and Company to wave the “all clear” flag, they’ll want to see the month-over-month Core CPI reading consistently printing in the 0.1-0.2% range, equivalent to the Fed’s 2% target.

With traders pricing in below 1-in-4 odds of another Fed rate hike this cycle, a higher-than-expected inflation reading is likely to be more impactful to markets. While one hot reading alone is unlikely to push the Fed toward hiking rates in December or January, it keeps that possibility on the table, especially if other economic data shows sisngs of accelerating.

US Dollar Technical Analysis – USD/JPY Daily Chart

Source: TradingView, StoneX

Despite the broader US dollar rally stalling over the past month or two, USD/JPY has continued to grind higher on yen weakness. Notably, the pair bumped up to test last year’s 30+ year high near 152.00 earlier today, and the Bank of Japan has yet to intervene, even verbally, to stem the island currency’s ongoing weakness.

From a purely technical perspective, USD/JPY remains in a well-defined uptrend, with the 14-day RSI holding in a steady bullish range between 50 and 65. A clear break above resistance at 152.00, without any attempt to stop it from the BOJ, could clear the way for a bullish continuation toward as high as 155.00. At this point, only a break below the 50-day EMA around 149.00 would mark an end to the uptrend.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX