- For three consecutive weeks, the USD/JPY currency pair has been moving in an ascending channel formation, with gains reaching the 151.20 resistance level.
- This is the highest for the pair in nearly a month, before closing the week’s trading stable around the 149.80 level.
- The currency pair will remain subject to investor reactions to the US administration’s imposition of tariffs on trade partners, in addition to the future of global central bank policies, particularly the future tightening of the Bank of Japan’s policy.
The US Dollar is Affected by Inflation Figures
According to Forex market trading, the US dollar’s performance against other major currencies was affected by the announcement of accelerating US Personal Consumption Expenditures (PCE) inflation in February. According to the economic calendar results, US inflation rose by 0.4% month-on-month in February, from 0.3% in January, exceeding expectations of 0.3%. The annual rate reached 2.8% from 2.7%, also exceeding expectations of 2.7%.
As is well known, PCE inflation is a measure of US inflation that the Federal Reserve considers when making US interest rate decisions and is closely watched by markets. According to licensed trading platforms, the US dollar fell from its highs following these figures, providing a clear explanation for the current US economic dynamics: stagflation conditions are uncomfortably close.
In general, upside surprises in inflation typically indicate a robust economy, leading to higher US bond yields and a stronger dollar. However, we are beginning to see the opposite reaction, with the dollar declining on the back of better-than-expected inflation data. This is because rising inflation is not accompanied by corresponding economic strength: stagflation describes an economy experiencing high inflation and declining growth.
Trading Tips:
We still recommend buying the USD/JPY pair at every downward level, but without risk.
Under these circumstances, the US Federal Reserve is unable to respond to economic weakness because inflation is moving in the wrong direction, ensuring the entrenchment of economic weakness. This increasingly proves the negative situation for the US dollar because of President Donald Trump’s aggressive tariff agenda.
As is well known, tariffs risk raising domestic prices and negatively impacting confidence. Recently, the Conference Board reported that its US consumer confidence index fell 7.2 points to 92.9, its lowest level in more than two years. The expectations index fell 9.6 points to 65.2, its lowest level in 12 years and well below the 80-point threshold that often signals an impending recession.
USD/JPY Technical Analysis and Expectations Today:
According to recent trading, the USD/JPY pair has declined to trade slightly below the 100-hour moving average. Friday’s decline pushed the USD/JPY pair closer to the 14-hour RSI overbought levels. Therefore, bears will seek to extend the current decline towards 149.30 or lower to the 148.20 support. Conversely, bulls will seek to capitalize on upward rebounds around 150.55 or higher at the 151.60 resistance.
In the long term, based on the daily chart, the USD/JPY pair is trading within an ascending channel. However, the 14-day RSI still has room to move before reaching overbought conditions. Therefore, bulls will seek to capitalize on the current wave of gains towards the resistance level of 152.40 or higher to the resistance level of 154.00. Conversely, and over the same period, bears will seek to capitalize on selling operations to take profits around 146.80 or lower at the support level of 144.00, respectively.
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