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USD/JPY lower on strong Japanese CPI results

Date: Friday 26 Jul 2013

USD/JPY lower on strong Japanese CPI results

The pair fell to 1-week low during the Asian session to levels below 99.25 following the good reading for Japanese consumer prices which, excluding fresh food, rose 0.4% last month. It is the biggest increase in four and a half years and a sign that Prime Minister Shinzo Abe’s efforts to thwart deflation are working. Economists expected Japan’s CPI to rise 0.3%.

"Early indications suggest that “Abenomics” may actually be working, albeit slowly, after Japanese inflation rose to 0.2% in July, compared to a year earlier. This figure came in above expectations of 0.1% and well above last month’s figure of -0.3%. It is also the biggest increase in consumer prices since May last year which is a real positive," said Craig Erlam, market strategist at Alpari UK.

"The rise in the CPI is mainly due to the weaker yen, which is raising import costs, so it's too early to be overly optimistic. But we can say that 'Abenomics' is very much in play," said Nobuhiko Kuramochi, strategist and economist at Mizuho Securities.

Carol Harmer´s, founder at Charmer Charts, view for overnight movements in the USD/JPY is that we have seen the market sell-off and we are now nudging the next trendline located at 98.60. "This is good support and if we can stay above here and climb back above 99.00 we have a good chance of trading higher, with 100.20 targeted," she said.

However, according to Karen Jones, technical analyst at Commerzbank, USD/JPY has sold off to the top of its cloud support at 98.75 and the risk has increased that we will see losses to the base of the cloud at 97.63. "Failure here will leave the market under pressure and likely to slide back to 96.75/95.40 en route to the 93.75 recent low," she said.

The analyst also pointed out that rallies remain blocked on the topside by its 100.80 resistance line and the 101.60/78.6% retracement.

EUR/JPY in a correction phase

The pair also suffered from recent yen strength and tumbled below 131.100. "Daily Stochastics have turned bearish and this will help the sellers gain confidence after these past few weeks. The first support is 131.00 and the second one is 130.82." Said Carol Harmer, founder at Charmer Charts.

However the mid-term outlook for the pair remains bullish, since, as Karen Jones noted, the market remains underpinned by its 8 month uptrend at 129.96 and we can only assume that while above here, scope remains to test the 133.82 May high. "Above here would see targets of 135.50 then 136.90 engage (TD resistance and the measurement higher of the wedge that completed at the end of last year)," she added.

José María Rodríguez, technical analyst at fxmania.es still sees the price in a clear path to yearly high at 133.80. "No weakness will be seen in the EUR/JPY while trading above 124,92 and the market is clearly far from this key support," he concluded.

Related articles:
EUR/JPY: Daily stochastics have turned bearish


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