USD/JPY Eyes Multi-Decade Highs Ahead of US Inflation Update

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USD/JPY Analysis

Fed Chair Powell firmed up his rhetoric on Thursday, saying that officials are "not confident" that they have attained a sufficiently restrictive stance to bring inflation back to the 2% target. This comes after a more dovish appearance at the start of the month, following the second straight hold by the central bank, which had weighed on the greenback.

This helped the resurgence in USD/JPY, as the monetary policy differential remains unfavorable for now. The Bank of Japan increased its YCC flexibility further, but maintained its dovish stance and showed no immediate intention to change its uber-loose stance. The pair now eyes the July 1990 highs (152.20), which would bring 155.76 in the spotlight, although the latter looks distant at this point.

On the other hand, the RSI points to overbought conditions and the pair remains on intervention watch, which can douse the bullish momentum. Pressure back towards the EMA200 (149.70) would not be surprising, but further losses below it would need a strong catalyst and the downside appears well protected.

Markets now turn to Tuesday's US CPI inflation for the next leg of the move. Although substantial progress has been made, the core was still above 4% y/y in September, while the headline showed persistence at 3.7% y/y after a notable acceleration.

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Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

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