The December UK Consumer Price Index (CPI) inflation declined to 2.5% year-on-year, falling short of the 2.7% market expectation. This unexpected easing adds pressure to the USDJPY exchange rate, which has been experiencing fluctuations amid shifting economic data. Currently, USDJPY is trading slightly above its 20-day exponential moving average (EMA) and the lower boundary of a short-term bullish channel, both positioned around 156.65.
The USDJPY pair's movement hinges on this 156.65 support region. Should this base crack, bearish forces may drive the price toward the 154.30-154.70 zone, a range defined by the 50-day EMA and a previously broken resistance trendline traced from July’s peak. The focus now shifts to the upcoming US CPI data release, which holds the potential to influence the currency's trajectory.
The upward momentum in USDJPY appears to be waning, with sellers closely monitoring the 156.65 area for further declines. Meanwhile, gold prices have rebounded from initial weekly losses, climbing higher for the second consecutive day and trading in the $2,680s on Wednesday. This recovery follows a softer-than-anticipated US Producer Price Index (PPI) release earlier, which led to a significant decrease in US yields.
Technical indicators suggest a downside risk for USDJPY, amplified by the 23.6% Fibonacci retracement of the recent uptrend reinforcing the significance of the 156.65 level. If this support holds firm, bulls may attempt a resurgence within the 158.00-158.75 zone. However, USDJPY has struggled to maintain its upward trajectory after failing to breach the 158.00 level on Tuesday.
As market participants tread cautiously ahead of the US CPI inflation data release, risk sentiment remains tepid. Core CPI inflation, excluding volatile food and energy prices, is anticipated to remain steady at 3.3% year-on-year. The forthcoming US inflation figures could lead to significant developments in the market dynamics.