Will USD/JPY Stabilize Above 118?

Will USD/JPY Stabilize Above 118?

Will USD/JPY Stabilize Above 118?

USD/JPY fell sharply today, breaking out of a 7-week triangle pattern formation. This morning’s U.S. retail sales report was abysmal. Not only did consumer spending rise by only 0.1% in September but spending in August was revised down to 0% from an initial 0.2% forecast. Excluding auto and gas, there was no growth in retail sales and excluding only autos, spending dropped -0.3%. On top of this, producer prices fell by -0.5%, the steepest decline this year. With inflation falling and consumer spending stagnating, it will be very difficult for the Federal Reserve to pull the trigger this year. The question now is whether the downside momentum can be sustained. Fundamentally, this weak report and our expectations for soft CPI tomorrow means USD/JPY could test its Aug 25 low of 118.25 however we are skeptical of how much further the pair will fall beyond that rate.

Technically, while there’s no doubt that USD/JPY broke out of its symmetrical triangle pattern it has yet to close below the sloppy descending triangle pattern. USDJPY needs to drop and close below 118.25 for both patterns to be broken and if it does, the next area of support will be the spike low of 116.19. On the upside, if USD/JPY rises back above 119.25, it should make its way to the triangle bottom near 119.75.

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