The USDJPY pair rose above a key resistance level following the US CPI report. The US dollar strengthened, driven by a surge in “short US dollar” trades. Expectations of rate cuts were lowered, with current forecasts showing 44 basis points of easing by year-end, down from 47 before the CPI report. The upcoming US PPI data may also impact the market. The Japanese yen (JPY) has remained relatively stable as attention stays on US-Japan trade talks. The Bank of Japan (BoJ) is monitoring these developments closely, with important dates including the Japanese upper house elections on July 20 and a trade deal deadline on August 1. A favorable outcome could lead to a JPY increase due to hopes for a rate hike.

Daily Chart Analysis

On the daily chart, USDJPY surpassed the 148.28 resistance level. If the price falls back below this level, sellers may aim for the 142.35 support. However, continued buying could push it toward the 151.19 resistance. The 4-hour and 1-hour charts indicate a bullish trend, with buyers looking for chances near the 148.00 level. Key upcoming data on US PPI, Jobless Claims, Retail Sales, Japanese CPI, and consumer sentiment could further influence the market. We are at a pivotal moment as the pair pushes beyond a major resistance. This raises questions about whether this breakout is genuine or just a “fakeout” due to short-covering. Our trading strategy in the next few weeks will hinge on which direction we believe the market will move. For those expecting more dollar strength, buying call options with a strike near the 151.19 target can be a way to profit with limited risk. Futures markets back this approach, as the CME FedWatch Tool indicates traders are predicting only one or two rate cuts from the U.S. Federal Reserve this year. Stronger US PPI or Retail Sales data this week could further support this move.

Risk Management Strategy

On the other hand, if we think this rally will fail, buying put options could give us downside protection as the price may drop back to 142.35. It’s important to remember that Japanese authorities have previously intervened to strengthen their currency. In April and May, the Ministry of Finance spent a record ¥9.79 trillion (about $62.2 billion) on intervention. Any signs of intervention or a positive trade outcome could lead to a swift price reversal. Given the uncertain nature of upcoming events, especially the US-Japan discussions between July 20 and August 1, we should adopt a volatility strategy. Buying a straddle or a strangle could be beneficial, as these strategies profit from significant price movements in either direction, protecting us from unexpected announcements. From a risk management standpoint, the upward trendline on the 4-hour chart will guide our short-term positions. A clear break below this line would indicate that bullish momentum is waning, prompting us to scale back our long positions. This aligns with the bearish scenario where sellers target a break below the trendline. Create your live VT Markets account and start trading now.

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