The USD/JPY is forming an ascending triangle pattern ahead of the upcoming US retail sales numbers. It is trading at 109.40, which is 1.80% above its lowest level this week. At the same time, analysts at Credit Suisse believe that the pair will rise to 110.97 in the near term.
BOJ and Fed divergence
The USD/JPY price rallied this week after data showed that US consumer and producer inflation rebounded in April. Consumer prices rose by 4.2% while producer inflation rose by 6.2% during the month. These numbers are substantially higher than the Fed target of 2.0%. They were also bigger than the median estimate by analysts polled by Reuters and Bloomberg.
Are you looking for fast-news, hot-tips and market analysis?
Sign-up for the Invezz newsletter, today.
At the same time, the labour market in the United States is still going strong. While the official job numbers were not strong, other flash numbers paint a situation where the job market is doing well. For example, the JOLTs report released on Tuesday showed that there were more vacancies than applicants.
Further, to attract employees, some companies like Mcdonald’s have started to boost their wages. And on Thursday, data revealed that the initial and continuing jobless claims numbers declined to the lowest level since the pandemic started. Therefore, while some of these numbers are transitory, there is a higher probability that the Fed will start tightening.
The USD/JPY is also reacting to the fact that consumer inflation in Japan remains under pressure. The latest data showed that the CPI was below 1% in March. This trend will likely continue primarily because of the country’s demographics since the older generation does not spend as much as the younger ones. Therefore, the BOJ will likely take longer to normalise situations.
USD/JPY technical outlook
The four-hour chart shows that the USD/JPY pair has formed an ascending triangle whose resistance is at the 109.70 level. In technical analysis, this pattern is usually a sign of bullish continuation. The pattern has not yet formed reached its level of confluence, meaning that the pair could retreat in the near term. In the long-term, however, I suspect that the pair will rebound as bulls target the March high of 110.95. This prediction is in line with what analysts at Credit Suisse pointed out. They wrote:
“Whilst a fresh rejection from the 110.97 March high should be expected, above in due course can open the door to a test of much important resistance at 111.96/112.40”