USD/JPY tumbles after the release of US CPI, down at 130.40s

• US inflation cools down, sending the US Dollar tumbling across the board.
• Claims for unemployment in the US were less than estimates, portraying a robust labor market.
• Fed’s Harker: Time for the Fed to rate increases at a smaller size.

The USD/JPY snaps two days of gains and stumbles more than 200 pips on Thursday, following the release of US inflation data, which cooled down, while claims were lower than estimates. Hence, the USD/JPY is trading at 130.44.

The US Department of Labor revealed that headline inflation, also known as the Consumer Price Index (CPI) for December, decelerated as expected to 6.5% YoY from 7.1% in November. Meanwhile, the month-over-month data showed inflation reading at -0.1%, lower than the 0% estimated. In the meantime, excluding volatile items inflation data, so-called core CPI came at 5.7% YoY, below the 6% foreseen.

Once data was released, the USD/JPY dropped sharply, as data justified US Federal Reserve (Fed) downshift to 25 bps rate hikes as the Fed scrambles to curb high inflation. At the same time, the Bureau of Labor Statistics (BLS) revealed that Initial Jobless Claims for the last week came softer at 205K, less than the 215K petitions expected by analysts, showing the labor market resilience.

Aside from this, Philadelphia’s Fed President Patrick Harker said that 25 bps would be appropriate going forward after the release of the US CPI report. Harker commented that the time for super-size rate hikes has passed and expects a few more rate increases this year.

USD/JPY Price Analysis: Technical outlook

The USD/JPY 1-hour chart portrays the pair’s reaction to US data. On the release, it tested the YTD low of 129.50, though it resumed to the upside, but readings at the Relative Strength Index (RSI) and the Rate of Change (RoC), confirm that sellers are in charge. Hence, the USD/JPY might resume its downtrend.

The USD/JPY key support levels lie at 130.00, followed by the January 12 low of 129.49. On the flip side, the USD/JPY first resistance level is 131.00, followed by the 20-EMA at 131.26.