Current trend

The USD/JPY pair continues its steady decline, developing a strong "bearish" trend formed at the beginning of the month. The instrument is testing the level of 139.50 for a breakdown, updating local lows from June 14. At the same time, investors are in no hurry to open new positions in anticipation of today's publication of June statistics on consumer inflation in the US. Forecasts suggest that on an annualized basis, the Consumer Price Index will slow down from 4.0% to 3.1%, approaching the US Fed's target levels, and on a monthly basis, the index could add 0.3% after 0.1% in the previous month. Core CPI excluding Food and Energy may correct from 5.3% to 5.0%.

A more confident decline in the instrument is hampered by macroeconomic statistics from Japan. Machinery Orders fell in May by 7.6% after rising by 5.5% a month earlier, while analysts had expected the figure to add 1.0%. In annual terms, the decline in the indicator accelerated from -5.9% to -8.7%, while the market expected only -0.2%. The Producer Price Index in June was -0.2% after -0.7% in the previous month, while experts expected 0.1%, and the domestic Price index for Corporate Goods adjusted from 5.1% to 4.1%, which turned out to be worse than forecasts at the level of 4.3%.

In a recent interview, Bank of Japan Deputy Governor Shinichi Uchida said that uncertainty about the outlook for inflation remains as it remains above the 2.0% target set by the regulator, and stressed the need for continued monetary easing to support the economy. Higher import prices were the driving force behind the negative dynamics of the Consumer Price Index; however, according to forecasts by the monetary authorities, cost drivers will be leveled in the coming months. Uchida stressed the need for a wage adjustment after a 3.58% increase, the highest level in 30 years, to achieve economic stability.

Support and resistance

Bollinger Bands on the daily chart show a steady decline. The price range is expanding, but it fails to keep pace with the "bearish" activity of recent days. MACD is going down preserving a stable sell signal (located below the signal line). The indicator is trying to consolidate below the zero level. Stochastic, having reached its lows, reversed into the horizontal plane, indicating risks of oversold US dollar in the ultra-short term.

Resistance levels: 140.50, 141.50, 142.54, 143.28.

Support levels: 139.35, 138.50, 137.50, 136.50.

Trading tips

Short positions may be opened after a breakdown of 139.35 with the target at 137.50. Stop-loss — 140.50. Implementation time: 2-3 days.

A rebound from 139.35 as from support followed by a breakout of 140.50 may become a signal for opening new long positions with the target at 142.54. Stop-loss — 139.35.