A hotter-than-expected US Consumer Price Index (CPI) print today would almost certainly light a fire under the greenback, sending USDJPY higher in its wake. The consensus is looking for core inflation to come in at 2.7% year-on-year, that's why any surprise could reshape the near-term landscape for the pair.
Here's what this means for the markets:
Dollar in the driver's seat. An elevated CPI reading would dash hopes for imminent Federal Reserve (Fed) interest rate cuts. Instead, it would reinforce the "higher for longer" narrative, or even revive whispers of another hike. In a world thirsty for yield, this keeps the greenback firmly in the saddle.
USDJPY's march higher. With the Bank of Japan (BoJ) sticking to its ultra-dovish script, the widening US-Japan rate gap acts like a magnet, thus pulling USDJPY along its long-term uptrend. A sustained break above 158.00 could set the stage for testing the critical 160.00 threshold.
Intervention wildcard. The 160.00 mark isn't just another number—it is widely seen as a line in the sand for Tokyo. A rapid ascent to the mentioned level could prompt the Japanese Ministry of Finance to step into the fray with yen-buying intervention, aiming to put a floor under its currency and curb speculative excess.
All in all, the current setup suggests a clear, two-phase play: first, capitalize on dollar strength if inflation overshoots, with the pair running toward 160.00. Then, prepare for a pullback near this threshold as intervention risks mount, making 160.00 less of a profit target and more of a zone where national authorities may curb further yen depreciation.
The ultimate recommendation is to sell USDJPY at 160.00. Lock in profits at 157.70. Place Stop Loss at 162.00.
Calculate your open position so that a potential loss (protected by a Stop Loss order) is limited to 1% of your deposit. If your account balance does not allow entering a position of this size, it is better to skip the trade and wait for other market signals that meet low-risk criteria.
This content is for informational purposes only and is not intended to be investing advice.
