USDJPY is under selling pressure in today’s Asian session as the US dollar is weaker against all of its major counterparts. As of this writing, the currency pair is down by 0.10% as it trades around 107.65 ahead of US inflation data and FOMC meeting.
When trading the forex market, it is not unusual for a currency to weaken before the release of a potential market-moving event. In the case of the US dollar, the CPI reports for May will be closely-watched because it could help investors gauge if the economy is recovering. The headline and core figures are both anticipated at 0.0%.
More importantly, the FOMC statement is scheduled later at 7:00 pm GMT which will be followed by a press conference at 7:30 pm GMT. It is widely expected that the Fed will sit on the sidelines and not make any changes to interest rates (currently between 0.00% and 0.25%).
However, investors will be keeping an ear out for what Fed Reserve Chairman Jerome Powell has to say about economic outlook. The NFP report for May sparked a general sense of optimism among market participants when it significantly beat forecasts. If Powell echoes this optimism, we could see the dollar strengthen. On the other hand, if he emphasizes on the validity of the data (the Bureau of Labor Statistics acknowledged shortcomings in their survey which may not accurately reflect current labor conditions), USDJPY could weaken further.
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On the 4-hour time frame, it can be seen that USDJPY is currently testing support at the rising channel (when you connect the lows of May 6 and May 29). A strong bullish close above the 100 SMA at 108.05 could mean that the uptrend on the currency pair is still intact. This may then suggest that USDJPY will soon trade higher, all the way to its June 5 highs at 109.84.
On the other hand, a strong close below the 200 SMA at 107.45 would effectively invalidate support at the rising trend line. USDJPY may then fall to near-term support at 107.06 where it bottomed on May 29. If support at that price does not hold, the next floor could be at 106.00 where the currency pair made a low on May 7.
USDJPY, 4-hour chart