FxWirePro: USD/JPY struggles to extend inflation-led gains, snaps two-day winning streak below cloud resistance

Chart - Courtesy Trading View 

USD/JPY was trading largely muted at 133.05 at around 03:45 GMT, struggles to extend previous session's gains. 

The major has snapped at 2-day winning streak and has refreshed session lows at 132.54, before paring some losses to edge higher.

Labor Department data on Tuesday showed that US consumer price index rose by a seasonally adjusted 0.5% from 0.1% in December, partly reflecting an uptick in energy prices. 

Consumer Price Index rose at an annualized pace of 6.4% in January, better than the previous 6.5% but above the market forecasts at 6.2%. It was the seventh straight month of slowing expansion. 

Core inflation increased by 0.4% month-on-month. The year-on-year core figure came in at 5.6%, down from 5.7% in the prior month and ahead of economists' predictions of 5.5%. 

The Fed has aggressively raised borrowing costs from near-zero to a target range of between 4.5% to 4.75% in less than a year, with an aim to bring down soaring prices. 

Despite unveiling a smaller 25-basis-point hike at its last policy meeting, Fed chair Jerome Powell has warned that rates may need to stay higher for longer given data showing resilient labor market strength.

Mixed U.S. inflation data released on Wednesday brewed more uncertainty over monetary policy headwinds this year. 

Data is expected to give the Federal Reserve more impetus to keep raising interest rates which could have a ripple effect on inflation and eventually economic growth. 

On the other side, BoJ governing board nominations could prove a bumpy ride for yen pairs until the market has a firmer grasp of the new Governor’s intentions.

Focus now on US Retail Sales and Industrial Production details for January, as well as NY Empire State Manufacturing Index for February for further impetus. 

Technical Analysis:

- USD/JPY has edged higher from session lows at 132.54

- Upside limited with 'Death Cross' weighing on the daily charts

- The pair is struggling to get past 55-EMA and daily cloud resistance

- Bullish RSI divergence on the daily charts keeps scope for upside

Major Support Levels: 

S1: 132.28 (5-DMA)

S2: 131.31 (21-EMA)

Major Resistance Levels: 

R1: 133.40 (Upper BB)

R2: 134.86 (110-EMA)

Summary: USD/JPY pivotal at 55-EMA and daily cloud resistance. Decisive break above will fuel further upside in the pair.