Unexpected Drop In Japan’s Inflation Despite Pro-Inflation Factors

#Forex #Trading #USD/JPY #CPI #Economy #PMI

CPI data in Tokyo was published today. According to the results of the month, the core CPI increased by 0.3%, but dropped to 3.3% in annual terms from 4.3%.

The broad CPI dropped to 3.4% from 4.4% in annual terms. This is not bad and provides support for JPY. But at the same time, strong data on the labor market came out: unemployment fell to 2.4% (2.5% before. indicator) is the best indicator since March 2020.

Thus, the labor market in Japan has recovered to the pre-pandemic level. 

Next, data on business activity (PMI) in the services sector were published, which turned out to be higher than expected and indicate an increase in activity.

Nevertheless, the USD/JPY quote is currently declining and has almost absorbed yesterday’s growth. In general, this is most likely caused by the general decline of the dollar today.

The ratio of buyers and sellers still indicates a preponderance of the latter: 38% of buyers versus 62% of sellers, which indicates a high probability of continuing the upward movement. But at the same time, there is too high a spread between the average prices of buyers (137.35) and sellers (131.16), which allows for the possibility of a deep correction.

Technically, the price touched the 200-day moving average and adjusted from it. At the same time, the RSI indicator again came to the mark from which it turned around earlier and drew a figure – a double vertex.

Key points

So far, fundamental factors point to the likelihood of further weakening of the JPY, but everything will depend on the Fed’s signals. 

Wallers has already spoken today, who made the market a little happy by saying that the decision on further rate hikes will depend on incoming data. Later, 3 more Fed officials will also speak today, so the market assessment may still change. 

In terms of the further movement of the USD/JPY, a correction is probably overdue after an almost recoilless growth of 600 points since February 8 of this year. The likely target of the correction may be a re-test of the level of 134.50 – 134.75 broken on February 21.

If this level does not hold, but there is a possibility of a decline up to around 132.00, where the price may meet the 50-day moving average. 

At the same time, I would not get into sales deals in the direction of the “crowd”, but rather would focus on finding deals to buy after the end of the correction or in the case of a reversal in the mood of market participants.

Currency        Purchases    Sales

Direction of the positions on 02.03.

Based on the fact that the “crowd” in the market usually does not make money, we choose the direction of our trades against the “majority”.

At this point, we can look for entry points by instrument:

AUDUSD – sell

NZDCAD – buy

USDJPY – buy

AUDNZD – sell

CADJPY – buy

EURAUD – buy

EURGBP – buy

EURJPY – buy

GBPCAD – sell

I have described 10 ways to find entry points in this article.

Important economic data today:

Already out today:

– Waller’s speech from the Fed

– Fed member Kashkari’s speech

– Japan’s vacancy to jobseeker ratio

– CPI in Tokyo, Japan

– Unemployment in Japan

– Australia’s housing loans

– Manufacturing and service sector activity

– German Trade Balance

– Spanish Services Business Activity

– Speech by ECB De Sagudin

To be released today:

– Italy’s service sector business activity index

– German service sector activity

– GDP in Italy

– European Union Services Business Activity Index

– UK Services Business Activity Index

– European Union Producer Price Index

– Building Permits in Canada

– Labour productivity in Canada

– US Services Business Activity Index

– US ISM Non-Manufacturing Purchasing Managers’ Index

– Speech by Fed representative Logan

– Address by Fed member Bostick

– Address by Fed member Bowman

Have a nice trade !