USD/JPY grapples losses as markets digest US CPI

• The USD/JPY navigates around the 145.55 level with 0.40% losses.
• US CPI recorded 3.1% in November, while the Core measure stood at 4%, matching expectations.
• US bond yields are falling ahead of Wednesday’s Fed decision.

In Tuesday’s session, the USD/JPY pair is facing a downward shift, now trading at the 145.55 level. This movement comes as market participants digest the implications of the US Consumer Price Index (CPI) data which confirmed another monthly deceleration.

In that sense, inflation in the United States, as indicated by the Consumer Price Index (CPI), decreased as expected in November. The CPI experienced a monthly increase of 0.1%, and the yearly inflation rate reduced from 3.2% in October to 3.1% in November. Meanwhile, the core annual inflation rate, which excludes volatile items, remained unchanged at 4%. These figures reveal decelerating inflationary pressures in the US economy, which could influence future Federal Reserve (Fed) monetary decisions.

That being said, the Fed will make its interest rate decision in Wednesday’s session. The US Dollar seems to stand weak as lower inflation makes markets bet on a less aggressive approach from the bank for the next decision. The consensus is that the Fed will leave rates steady at 5.5%, but the focus will be on the economic and interest rate projections to look for hints on when the bank will start its easing cycle. It is worth noticing that the bank officials have recently stated that they remain data-dependent and hinted that they need to see more evidence of the economy cooling down to start cutting rates.

In the meantime, US bond yields are declining. The 2-year rate stands at 4.72%, and with the 5-year rate at 4.22%. The 10-year yield holds a similar rate of 4.23%.

USD/JPY levels to watch

The daily chart indicators are reflecting a shift towards a neutral to bullish bias for the pair. With the Relative Strength Index (RSI) on a flat slope yet still in negative territory, it points to the declining strength of buying momentum.The Moving Average Convergence Divergence (MACD), which prints flat green bars, provides further substantiation to a stagnated bullish momentum.

However, it’s worth considering that the pair’s position relative to its Simple Moving Averages (SMAs) paints a more nuanced picture. The pair is trading above the 200-day SMA but remains under the 100 and 20-day SMAs. This indicates that despite recent selling momentum, the long-term trend remains largely in the favor of buyers.

Support Levels: 145.00, 144.50, 144.00.
Resistance Levels: 145.70, 146.00, 146.50.

USD/JPY daily chart