Best day of the year for USD/JPY, EUR/JPY on hot CPI, peace talks

The winning combination of hot CPI data for the US alongside progress towards peace in Ukraine sent USD/JPY up 1.3% on Thursday, to mark its best day in just under a month.

Markets were already expecting core CPI to perk up to 0.3% m/m in January, but they got more than they bargained for with a 0.4% m/m print and clean sweep of ‘beats’ among the headline figures. Core CPI is at a 10-month high at 0.4% and CPI rose to a 2-year high of 0.5%. On an annual basis, core inflation has risen back to 3.3% y/y (2-month high) and CPI up to 3% y/y (6-month high).

Furthermore, the University of Michigan report released on Friday showed that the 1-year inflation expectation had risen to a 15-month high of 4.4%, and its 1-percentage point m/m print was its fastest increase since 2011.

Needless to say, odds to a Fed cut this year remain low. And it may only be a matter of time before a hike starts getting priced in, should we see US data continue to point to inflationary pressures while Trump rolls out his tariffs. I noted in yesterday’s report that Powell subtly hinted that a hike could be on the table should trump’s tariffs prove to be as inflationary as feared, and the idea should become mainstream if CPI data for February continues to rise.

And this is surely a topic for the RBA to discuss at next week’s interest rate decision.

Peace talks to end the Russia-Ukraine war are underway, which helped lift sentiment in the US session and overshadow any concerns of higher inflation.

Trump had a “lengthy and highly productive phone call with Vladimar Putin” according to his post on Truth social, saying the two leaders discussed Ukraine, the Middle East, energy, AI and the dollar. Respective teams are set to begin negotiations to end the war between Russia and Ukraine. And according to Zelinskiy’s office, both leaders have since spoken to Ukraine’s leader.

• S&P 500 and Dow Jones futures recouped most of their earlier CPI losses while Nasdaq futures scraped a narrow gain of 0.2%.
• Gold futures are flat around 2930 after dipping briefly beneath 2900, although they seem hesitant to retest the record high set on Tuesday.
• Crude oil futures fell -2.9% after the Trump-Putin call and now look set to head for $70
• The US dollar index was flat after erasing its post-CPI gains
• The Japanese yen was the weakest FX major, Euro was the strongest thanks on a relief rally thanks ot peace talks
• This made EUR/JPY the strongest pair we track, and rallied in line with yesterday’s bullish bias

Economic events in focus (AEDT)

• 07:45 – NZ retail sales
• 10:50 – JP PPI
• 11:00 – AU inflation expectations
• 13:30 – NZ inflation expectations
• 16:00 – AU home loans, housing finance
• 18:00 – UK GDP (Q4), index of services, industrial production, manufacturing production, trade balance
• 21:00 – CN outstanding loan growth, social financing, M2 money stock
• 21:00 – EN industrial production
• 00:30 – US PPI, jobless claims

EUR/JPY technical analysis:

The positive headlines around Russia-Ukraine peace talks were the ideal catalyst for EUR/JPY to head towards my 161.6 target. While prices are not quite there yet, they’re close enough to remain possible. The daily chart shows that EUR/JPY posted its best day in a month and tagged the ‘Deep Seek’ resistance, where the market gapped lower.

The 1-hour chart also shows profits being taken after that milestone level was reached. Yet the trend is so strong I suspect it has more to give. Bulls could see if prices can hold above 160 or the 159.30 support cluster (weekly R1 pivot, weekly VPOC) before seeking fresh longs, while monitoring the 1-hour RSI (2) to see if it coincides with an oversold reading or bullish divergence.

If appetite for risk continues to rise and headlines from Russia-Ukraine peace talks remain positive. A break above 162 brings the highs around 164 into focus for bulls. Note the weekly R2 pivot around 162.50 as a potential resistance level along the way.

USD/JPY technical analysis:

Price action across all yen pairs are almost identical. Although in the case of USD/JPY, it has seen a strong recovery back above its 200-day SMA and January low, and looks set to retest its 50-day SMA near the weekly VPOC (155.26).

The strong trend on the 1-hour chart has presented its second consolidation, and the strength of the rally and accompanying volumes suggest the retracement could be shallow once more. If prices break above 155.30, note that monthly pivot point just beneath the 156 handle which makes the next likely resistance level.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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