USDJPY is moving in trend direction

The U.S. dollar (USD) fell to a two-month low against major currencies on Wednesday. Investors are awaiting the release of the U.S. inflation data, which may provide more signals about the Federal Reserve's (Fed) policy concerning interest rate hikes. 

IG market strategist Yeap Jun Rong said that such dollar movement is due to general expectations of further easing inflationary pressure, reflected in forecasts for consumer price index updates.

Economists polled by Reuters expect the inflation rate to fall from 4% to 3.1%. That would be the lowest level since March 2021. The core rate could also fall from a level of 5.3% to 5%. However, this is still well above the central bank's 2% target.

Markets estimate the probability of the Fed hiking rates by 25 basis points on July 26 at 92%, the CME Fedwatch tool shows.

While several Fed members said on Monday that the Fed would soon stop tightening its monetary policy, John Williams, president of the New York Fed, during his speech on Tuesday re-emphasized the regulator's plans to raise its short-term target rate in the near term.

The Japanese currency (JPY) received support from expectations of a monetary policy adjustment by the Bank of Japan at its meeting this month. The updated outlook from the Japanese regulator may give some signals about possible changes in the Yield Curve Control (YCC) policy and strengthen the JPY. This was stated by Jane Foley, head of currency strategy at Rabobank.

The D1 timeframe shows the USDJPY currency pair forming an uptrend. The price is approaching the trend support.

The curve of the Relative Strength Index indicator is approaching the oversold zone on the H4 timeframe.

In terms of wave analysis, the pair is forming the third descending wave. Technically, the current wave has completed its decline.

Considering the short-term fundamentals and technical indicators, the price may rebound from the trend support.

Signal:

Short-term prospects for USDJPY suggest buying. 

The target is at the level of 141,50.

Part of the profit should be taken near the level of 140,45.

A stop-loss could be placed at the level of 138,05.

The bullish trend is short-term, so trade volume should not exceed 2% of your balance.