- Summary:
- US-China trade talks begin today, putting the USDJPY pair in focus. But first the US CPI and Core CPI reports could provide near-term price direction.
The USDJPY will be a keenly watched currency pair as the US-China trade summit kicks off today. The USDJPY pair started the day with an 80-pip jump from intraday lows of 107.03, before retreating to settle at 107.33 as at the time of writing. Developments from the US-China trade talks could decide price direction heading into the weekend.
The New York Times reports that President Donald Trump has given approval for resumption of sales of certain US components to Huawei. This news is what probably provided some positive stimulus for the pair. Reuters news agency also covered the spokesman for the Chinese foreign ministry Geng Shuang. Shaung has reportedly implored the US government to ease off on applying “unreasonable pressure” on Huawei Technologies and other Chinese companies.
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Daily Outlook for USDJPY
Immediate impact on the USDJPY may be felt from the data front, even as risk sentiment in the market remains lukewarm this morning. The US Consumer Price Index (CPI) report will be released during the New York session.
The CPI monthly figure is expected to come in at 0.1%, which is the same as the previous number. The core component of this report (CPI ex energy and food) comes with a consensus number of 0.2%, which is lower than the previous number of 0.3%.
Both reports have to move in tandem with each other to produce a tradable response on the USDJPY. I would be looking for the following situations:
- Core CPI of 0.3% or higher is good for USDJPY. Core CPI of 0.1% or lower is bad for USDJPY.
- CPI m/m of 0.2% or higher is good for the USDJPY, while 0.0% or higher is bad for the USDJPY
The USDJPY hit an intraday high of 107.77 (R1 pivot) before its retreat to present levels at the central pivot. A CPI/core CPI report which is good for the USD could push the USDJPY to retest the 107.77 R1 pivot resistance as the first target. Above this level, the R2 and R3 pivots will become relevant, but only on positive trade headlines in my opinion.
On the flip side, a CPI/core CPI report which falls far short of expectations could be bad for the USD and may push USDJPY below the central pivot support and towards the S1 pivot price of 107.05. This area is close to the intraday low price of 107.03 experienced earlier today.
I expect the news to have a light impact on the USDJPY and would expect the headlines from the US-China trade talks to have the bigger impact on price action.