The USDJPY pair increased above a critical resistance level after the US CPI report. The US dollar experienced a rise, influenced by the crowded “short US dollar” trades. The rate cut bets were reduced, with current pricing showing 44 basis points of easing by year-end compared to 47 basis points before the CPI report. There’s anticipation regarding the US PPI data that might influence this further.
The JPY hasn’t seen much change as focus remains on US-Japan trade negotiations. The BoJ is closely watching trade developments, with key dates being the Japanese upper house elections on July 20 and a trade deal deadline on August 1. A positive outcome might boost JPY due to expectations for a rate hike.
Daily Chart Analysis
On the daily chart, USDJPY broke above the 148.28 resistance. Should the price drop back below, sellers may target the 142.35 support, whereas continued buying pressure could drive it towards the 151.19 resistance. In the 4-hour and 1-hour charts, a bullish trendline shows momentum, with buyers looking for opportunities near the 148.00 level. Upcoming US PPI, Jobless Claims, Retail Sales, Japanese CPI, and consumer sentiment data may influence market dynamics further.
We are now at a pivotal moment with the pair pushing above key resistance. This forces us to question whether this is a sustainable breakout or a “fakeout” driven by short-covering, as the author suggests. Our derivative strategy in the coming weeks will depend entirely on which side we believe will prevail.
For those anticipating further dollar strength, buying call options with a strike near the 151.19 target offers a defined-risk way to capture upside. This view is supported by futures markets, with the CME FedWatch Tool showing that traders are only pricing in one or two rate cuts from the U.S. Federal Reserve this year. Stronger-than-expected US PPI or Retail Sales data this week could be the catalyst for this move.
Risk Management Strategy
Conversely, if we believe this rally will fail, buying put options provides downside exposure as the price potentially falls back towards 142.35. We must remember that Japanese authorities have historically intervened to strengthen their currency, with the Ministry of Finance spending a record ¥9.79 trillion (around $62.2 billion) on intervention just this past April and May. Any hint of intervention or a positive outcome from the trade negotiations could trigger a sharp reversal.
Given the binary nature of the upcoming catalysts, especially the US-Japan developments between July 20 and August 1, a volatility strategy is prudent. We could consider buying a straddle or a strangle, which would profit from a large price move in either direction. This strategy protects us from being on the wrong side of a surprise announcement from either country.
From a risk management perspective, the upward trendline on the 4-hour chart is our immediate guide for short-term positions. A decisive break below this line would signal that the bullish momentum is fading and would be our cue to reduce long exposure. This aligns with the bearish scenario of sellers targeting a break below the trendline.
