Four sessions of slow USD/JPY descent ended with a bang on Wednesday with the release of US consumer inflation figures for October at 8:30 am local time.The predicted 0.4% increase for the annual rate to 5.8% was more than doubled at 0.9% and the annual Consumer Price Index (CPI) jumped to 6.2%, its highest pace in over 30 years.

Reaction was immediate. The US dollar jumped in every major pair. The USD/JPY rose 20 points to 113.49 in the first 15 minutes, paused briefly before 113.50, then continued higher the rest of day closing in New York at 113.89, over a figure above its open. When the Federal Reserve launched its bond program taper at last Wednesday’s meeting with a $15 billion reduction in monthly purchases, only November and December were spoken for in the FOMC statement. Beyond that the governors said they expected the cuts to continue but the decision would turn on progress of the US economy.

BULLISH AND BEARISH CONDITIONS/ POSSIBILITIES :

Fundamental factors and technical support favor the USD/JPY but performance has been capped above 114.00. The USD/JPY had been positioned for a break higher from October 15. The failure to do so led to November's decline. Despite the strong boost from US Treasury rates on Wednesday, the USD/JPY was unable to penetrate above the recent highs and did not approach the three-year top of 114.70 of October 20. If the USD/JPY again fails to achieve a new high, a retracement becomes likely. The 112.25 to 113.25 range is vulnerable.

The MACD (Moving Average Convergence Divergence) line moved below the signal line on October 26. The subsequent two weeks of price action saw a drop to below 113.00 until reversed by the US Treasury yield surge on Wednesday. The MACD line has not recrossed the signal line. The divergence between the two lines decreased this week indicating a rising chance of a decline in the USD/JPY.

Wednesday's rise in the Relative Strength Index (RSI) brought it about half-way to overbought status but the fade on Thursday and Friday left it without strong indication.

King Dollar will be taken over by the bears below 114.0

Nov 14 2021