USD/JPY Approaches 200 SMA Before US CPI Release
- US CPI forecasted to increase by 2.7% year-over-year
- Japanese wholesale inflation rises to 3.7%
- USD/JPY testing resistance at the 200 SMA level
USD/JPY has been on an upward trajectory for the third consecutive day, driven by rising wholesale inflation in Japan as the market awaits the release of the US CPI data.
The US dollar is gaining strength against major currencies as investors anticipate the US CPI figures, which will be pivotal in shaping the Federal Reserve's future rate cut strategies.
Analysts expect the CPI to grow to 2.7% year-over-year, up from 2.6%. On a month-to-month basis, CPI is estimated to rise by 0.2%, while core inflation is projected to remain at 3.3%.
If the inflation data comes in hotter than expected, it could alter market predictions regarding rate cuts, which currently value a 86% chance of a 25 basis point cut in December, alongside an anticipated rate reduction once per quarter in 2025.
In Japan, the Corporate Goods Price Index (CGPI) has shown an increase of 3.7% in November, exceeding forecasts of 3.4%, marking the fastest pace of price increases since July 2023.
This uptick in wholesale inflation has led to a rise in expectations for a 25 basis point rate hike from the Bank of Japan on December 19, now assessed at 27%.
USD/JPY Technical Outlook
The USD/JPY has bounced back from support at the 100 SMA, climbing above the 150 level and is currently approaching the significant resistance at the 200 SMA around 152.00.
Should buyers manage to surpass this resistance, targets will shift towards 153.85, which represents the 61.8% Fibonacci retracement from the recent high of 162 to the low of 139.50. Further momentum could take it up to 157.10, the 78.6% Fib level.
Conversely, failure to breach the 200 SMA could allow sellers to challenge the psychological level of 150.00, followed by 148.65, the December low, as well as the 100 SMA.
Oil Prices Climb Amid Optimism Over Chinese Policy
- Anticipated looser monetary policies in 2025 improve demand outlook
- OPEC's upcoming report expected to shed light on supply and demand
- Current oil prices remain within a familiar trading range
Oil prices have increased for the third day in a row, supported by positive sentiment regarding potential shifts in monetary policy in China.
Recent statements from Chinese authorities indicate intentions to adopt more accommodating monetary policies in 2025 to bolster the struggling economy.
This potential for improved growth prospects in China is boosting the expectations for oil demand, as imports have shown a year-over-year rise of 14% in November, marking the first increase in seven months.
However, any positive developments in China’s monetary stance may be undermined by the possibility of new trade tariffs being enacted.
Market participants are now focusing on the upcoming OPEC monthly report, which could provide critical insights regarding future supply and demand scenarios. Prior reports indicated increasing supply from non-OPEC sources, suggesting a potential supply surplus next year.
In related news, API inventory data for oil shows a rise of 499k barrels for the week ending December 6, with gasoline inventories increasing by 2.85 million barrels. This outcome was higher than the expected increases of 900k and 1.7 million barrels, respectively.
Oil Technical Analysis
The oil market continues to consolidate within a well-defined range, with support found around the 67.50-67 zone and resistance around 71.50-72.50.
Long-term, the trend appears to be downward, as oil prices remain below a declining trendline established since September 2023 and also below the 200, 100, and 50 SMAs.
Sellers are anticipated to aim for a breach of the 67.50 support level, with targets set at 65.25, the 2024 low, and subsequently at 63.50, the low observed in 2023.
To extend upward movements, buyers will need to push past the 50 SMA at 70.50, targeting the resistance level of 71.50-72.50. Beyond this, a rally towards 75.00 may be on the horizon.
