USD/JPY Support Test Ahead of Crucial Core PCE Data Release
The USD/JPY currency pair has been exhibiting a dichotomous behavior, where longer-term charts indicate a bearish trend while shorter-term charts show bullish momentum. The pair recently tested resistance at 159 and pulled back to support at 156.68, which led to a 100+ pip bounce yesterday. However, bulls have not continued the push, possibly due to upcoming heavy data releases.
A shift in the USD/JPY pair's trend has been observed over the past five years, with a push-pull dynamic of 'up the stairs, down the elevator.' This can be attributed to positioning, where buyers test and exit at fresh highs, leading to retracements. Since July, this dynamic has been driven by dual intervention from the U.S. and Japan.
Despite recent data releases on Japanese spot rates, the pair remains vulnerable to inflation concerns, as US inflation is expected to come in at 3.5% tomorrow, which still outpaces Japan's inflation rate. Core PCE in the United States may have a direct impact on the pair, with stronger inflation leading to higher odds of more US rate hikes and further exposing the deviation between the US and Japan.
USD/JPY is currently holding support at 156.68-157.22, leaving room for bullish continuation. However, a head and shoulders formation has set up on shorter-term charts, requiring a break of last week's low to trigger a move of approximately 250 pips, pointing to around the 154 level.