USDJPY trades towards trend support at 152.40 on US macro statistics

The USDJPY fell sharply following the release of US inflation data. The core consumer price index hit its lowest level in three years, increasing the chances that the Federal Reserve (Fed) will cut interest rates soon.

The yen strengthened to a two-week high of 153.6 per dollar as US Treasury yields fell. This will limit currency intervention by the Bank of Japan and other authorities in the country. The gap between American and Japanese 10-year bond yields has narrowed by nearly 20 basis points this week. This was the largest weekly move this year.

The US Consumer Price Index (CPI) rose by 3.4% year-on-year in April, down from a 3.5% increase in March. On a monthly basis, the headline CPI inflation dropped to 0.3% in April from 0.4% in March, below the consensus of 0.4%.

This data, along with weaker than expected retail sales data, reinforced expectations of weaker consumer demand in the coming months. This gave the Fed more confidence in the possibility of a rate cut. According to the CME Fedwatch tool, traders estimate the probability of a 25 basis point cut in September at nearly 54%.

However, the Japanese economy contracted more than expected in the first quarter, complicating the challenge for policymakers as they look to raise rates from near-zero levels.

From a technical standpoint, USDJPY is in the process of forming an uptrend on the D1 timeframe. Fundamental factors are pushing the pair towards the channel support.

The Relative Strength Index (RSI) on the H1 timeframe is approaching the oversold zone, but the signal remains bearish.

Signal:

Short-term prospects for USDJPY suggest selling. 

The target is at the level of 152.40.

Part of the profit should be taken near the level of 153.30.

A stop-loss could be placed at the level of 155.25.

The bearish trend is short-term, so trade volume should not exceed 2% of your balance.