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The Dollar/Yen is inching lower on Wednesday as uncertainty over the outcome of the U.S. mid-term elections is encouraging many of the major banks and institutions to straddle the sidelines.
Traders are also monitoring the price action in the U.S. Treasury market as they brace for the release of the U.S. consumer inflation report due to be released on Thursday.
The election results could have a long-term influence on the Forex pair, but over the short-run, the direction is being controlled by the interest rate differential between U.S. Government bonds and Japanese Government bonds.
Essentially it’s the divergence in policy between the U.S. Federal Reserve and the Bank of Japan that has control over the big picture.
At 04:44 GMT, the USD/JPY is trading 145.568, down 0.104 or -0.07%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $64.09, up $0.44 or +0.69%.
US Consumer Inflation Data Main Focus
After the results of the U.S. elections are verified, trader attention will immediate shift to Thursday’s Consumer Price Index (CPI) report. Economists are forecasting a slight decline in both the monthly and annual core numbers to 0.5% and 6.5% respectively.
The easing in inflation, though, might not slow the Federal Reserve’s policy tightening that federal funds futures show will peak at 5.117% in June 2023.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. However, momentum is trending lower.
A trade through 145.113 will change the main trend to down. A move through 148.849 will signal a resumption of the uptrend.
On the upside, potential resistance levels are lined up at 146.149, 146.981 and 148.529.
On the downside, the nearest support is a 50% level at 143.913. The next major support level comes in at 141.179.
Daily Swing Chart Technical Forecast
Trader reaction to the 50% level at 146.149 is likely to determine the direction of the USD/JPY on Wednesday.
Bearish Scenario
A sustained move under 146.149 will indicate the presence of sellers. Taking out 145.113 will change the main trend to down. This could extend the selling into another 50% level at 143.913. This is a potential trigger point for an acceleration into the longer-term 50% level at 141.179.
Bullish Scenario
A sustained move over 146.149 will signal the presence of buyers. The first target is 146.981.
Overtaking the 50% level at 146.981 will indicate the buying is getting stronger. This could trigger an acceleration to the upside with the resistance cluster at 148.529 – 148.849 the next key target zone.
Taking out 148.849 will reaffirm the uptrend and could trigger an acceleration to the upside.
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