USD/JPY loses ground, still closes the week above 145.00

• USD/JPY tallied a consecutive day of losses, but it is still poised for a weekly gain.
• The JPY closes the week strong driven by hopes of a potential BoJ pivot after hot inflation figures from July.
• The USD benefited on Friday on a negative market mood.

In Friday’s session, the JPY was one of the top performers as it traded strongly against most of its rivals following the release of higher-than-expected inflation figures from July from Japan. On the other hand, the USD, measured by the DXY index, trades mild losses, after jumping to its highest level since mid-June, near 103.60.

Japan’s recent National Consumer Price Index (CPI) for July surpassed forecasts, coming in at 3.3% YoY, outperforming the anticipated 2.5% and aligning with the previous reading. This unexpected boost has propelled the JPY to a position of strength against many of its counterparts. However, given the overall economic fragility in the local economic activity, the reported inflation might not align with the Bank of Japan’s (BoJ) ideal conditions for a policy shift. Furthermore, the BoJ maintains a cautious stance as it closely monitors developments in China, refraining from adjusting to its accommodative approach.

On the US side, the Greenback benefited from risk-aversion due to the recent Chinese financial woes after the real state gigant Evergrande filed for bankruptcy protection in the US. In addition, the USD got a boost against its rivals during the week mainly because of the hawkish stance seen by the Federal Open Market Committee (FOMC) in Wednesday’s minutes from the July meeting, which saw participants not shutting the door for another hike in this cycle. Focus now shifts to next week’s S&P Global PMI indexes.

USD/JPY Levels to watch

The daily chart shows bullish exhaustion for USD/JPY, contributing to a neutral, bearish technical stance. Both the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) exhibit indications of fading momentum. The RSI shows a downward trend above its midline, suggesting diminishing bullish strength, while the MACD lays out decreasing green bars. In addition, the pair is above the 20,100,200-day Simple Moving Averages (SMAs) on the bigger picture, implying that the bulls are in command over the sellers on a broader scale.

Support levels: 145.00, 144.00, 143.20 (20-day SMA).

Resistance levels: 145.50, 146.00, 146.30.

USD/JPY Daily chart