USD/JPY: Compression trading underway

The bulls and the bears are being ‘pressed together’ as the daily range in the USD/JPY pair keeps getting smaller and smaller.

Will US CPI data trigger breakout?

US consumer price index, housing starts & building permits and industrial production data is due for release later today. Whether the string of US data is successful in ending the range bound action in the pair depends entirely on the resulting change in the Fed rate hike bets.

Reaction to the weak data (drop in USD/JPY) is likely to be much stronger than the reaction to the strong data, given the markets are having a tough time believing the Fed could hike rates any time soon.

At the time of writing, the bird was trading around 101.13. Spot was confined to a narrow range of 101.45-100.87 yesterday.

USD/JPY Technical Levels

A breakdown of support at 100.71 (50% of 2011 low – 2015 high) would expose psychological level of 100.00. Bank of Japan (BOJ) would come under pressure if the pair ends the day below 100.00.  Nevertheless, on technical charts such a move would open doors for a re-test of Brexit day low of 98.97. On the higher side, 102.00 is immediate hurdle followed by a major resistance at 102.65 (Aug 8 high). A violation there could 103.00 levels.