The USD/JPY exchange rate pulled back slightly, moving from this week’s high of 158.85 to 157 as geopolitical tensions fell and after Japan published strong macro data. So, what next for the pair ahead of the upcoming US inflation report?
Japan published strong GDP data
The USD/JPY exchange rate pulled back as the US dollar retreated after signs that Donald Trump was capitulating on his war in Iran.
In several statements on Monday, Trump said that his war was ahead of schedule and he was considering ending it soon.
Still, ending this war now would be a sign that the US has largely lost as the regime in Tehran still remains, and the unconditional surrender has not happened.
Trump’s de-escalation happened after crude oil prices surged on Monday, with Brent and the West Texas Intermediate (WTI) rising to over $115. He also saw the US stock market plunge, with the Dow Jones falling by over 1,100 points in the futures market.
The USD/JPY exchange rate also reacted mildly to the latest Japanese GDP data. According to the statistics agency, the economy grew by 1.3% in the fourth quarter after contracting by 2.6% in the previous one.
The economy grew by 0.3% on a QoQ basis, a major improvement from the 0.7% retreat in the third quarter. This trend happened as capital expenditure rose by 1.3%, while private consumption rose by 0.3%. External demand was unchanged.
These numbers mean that the Bank of Japan will maintain a relatively hawkish tone this year and possibly hike by 0.25%.
The next key catalyst for the USD/JPY pair will be the upcoming US consumer inflation report on Wednesday.
Economists polled by Reuters expect the upcoming report to show that the headline Consumer Price Index (CPI) rose 2.5% in February, while core inflation remained at 2.5%.
The risk, however, is that this month’s inflation may rebound because of the recent jump in crude oil and natural gas prices.
As a result, bond yields have continued rising. Data shows that the US ten-year yield rose to 4.12%, while the 30-year rose to 4.72%.
USD/JPY technical analysis
USDJPY chart | Source: TradingView
The daily timeframe chart shows that USD/JPY exchange rate has rebounded in the past few weeks, moving from a low of 152.22 in February to a high of 158. It formed a double-bottom pattern at that level and a neckline at 157.57.
The pair has remained above all moving averages, a sign that bulls remain in control for now.
However, it has formed a shooting star candlestick pattern, which is made up of a small body and a long upper shadow. This pattern often leads to a retreat over time.
Therefore, the pair will likely retreat further in the near term, potentially to the key support level at 156, and then resume the uptrend because of the double-bottom pattern.
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