USD/JPY analysis ahead of the US inflation reports

11 janv. 2022

USD/JPY bounced off the one-week top yesterday and stayed firmer around its intraday high of late. This week, we've seen another missile test from North Korea, which may lead to further sanctions being put in place by the US.

We also saw Fed Chair Powell testify at a hearing about economics and potential new measures to fight Omicron (a related virus). All this news provides a lot of focus on covid variants. That helped JPY to dominate other significant currencies. As a result, JPY became strong against most of the major currencies.

USD/JPY consolidated the recent losses around 115.30, rising for the first time four days during early Tuesday. The risk barometer pair portrays the market's cautious optimism amid recently positive comments from US Federal Reserve (Fed) Chairman Jerome Powell and covid updates. However, inflation fears ahead of Wednesday's US Consumer Price Index (CPI) data challenge the USD/JPY bulls.

The market's sentiment towards the US FED members remains hawkish, with worries around potential economic issues and a cure for the coronavirus- its variants.

Fed Chair Jerome Powell made hawkish comments in prepared remarks this morning, which could be seen as a significant favor to positive risk-on moods.

Additionally, words from Merck's official saying, "Expect Molnupiravir mechanism to work against omicron any covid variant," could also be seen as positive for risk appetite.

However, what should note that market players remain cautious ahead of today's testimony from Fed Chair Powell and Wednesday's US inflation data.

If the US cannot manage to keep their in under control, USD/JPY may drop and test nearly 112.00

From the present rate, 115.65 is the immediate resistance, and swing high is the 116.35 price zone.

Technical Analysis

Last week USD/JPY tested 116.35 zones; what was the trendline resistance. Technically it was supposed to drop from that level. But Omicron and other issues help to drop more than 100+ pips.

From the present rate, immediate support is identified at the 114.70 price zone. So, I am expecting USD/JPY may test the 114.70 price zone very soon.

Then investors will wait for the inflation reports. If the US inflation reports print positive, USD/JPY may bounce back to the swing high 116.35 area or immediate resistance 115.65 area.

On the other hand, if the US inflation reports drop and Omicron spreads more than expected, USD/JPY has one more chance to test the 112.00 price zone this week.