In June the USD/JPY currency pair showed a non-stop growth. Now the reasons for a reversal are forming both from technical and fundamental sides. There are more signs of inflation retreating. The weakness in the commodity market, which is an important element of consumer price growth, is also observed in recent months. Despite unexpected oil production cuts, the prices have remained at current levels, suggesting weak oil demand. Low commodity prices mean that this effect will spread throughout the supply chain, leading to an easing of global price pressures.
Another positive sign is low inflation expectations in Europe. Given the significance of the eurozone economy, these expectations might also be associated with other countries. This means that already after a year central banks might start to ease monetary policy. The U.S. dollar is weaker than other currencies during global rate cuts, therefore the probability of the Japanese yen’s reversal has increased.
Inflation expectations of eurozone consumers fell to their lowest level since 2016, according to data compiled by the European Commission. This indicates a future slowdown in consumer price growth.
The index fell to 6.1 points in June, compared to 12.1 points in the previous month. It reflects households' views of where inflation will be in a year from now. The data supports some analysts' opinion that price increases are not rooted in the economy.
According to the technical analysis, the USD/JPY currency pair moved flat and broke down the uptrend. Against the background of other currencies in developed markets in recent weeks, the Japanese yen showed one of the worst results. The RSI indicator has fallen below the overbought zone and is forming a divergence. The RSI is declining while the prices are remaining flat. This signals the bulls' weakness at the current point. To determine the downside targets, build a Fibonacci grid from the start of active growth to the price high. The first target is 143.5. A Stop-loss will be set at the return to the trend and renewal of the current price high, which corresponds to the level of 145.1.
USDJPY is likely to decline:
Take profit – 143.5
Stop-loss – 145.1
This content is for informational purposes only and is not intended to be investing advice.
