USD/JPY bears move in again and eye a test of critical support structure

• USD/JPY bears move in on interest rate expected convergence between BoJ and Fed. 
• Bears eye a test of the key swing point at 138.42 while bulls look for a correction towards 38.2% Fibo. 

138.42 is a prior swing point on the daily chart that could prove to be a key level. On the upside, if there is an immediate correction, there is an area of imbalance between 140.36 and 141.28 around a 38.2% Fibonacci retracement area. 

USD/JPY is on the back foot again on Wednesday due to a deviation in the US Consumer Price Index that arrived (YoY) in June at 3.0% (vs. the expected 3.1% and the previous 4.0%. The core data was a larger miss of 4.8% vs. 5% expected and the prior 5.3%. For the month, it arrived at 0.2% vs 0.3% expected and the 0.4% prior.

The US Dollar index dived to as low as 100.876, the lowest in two months while US rate futures still show traders overwhelmingly expect the policy rate to rise a quarter point, to a 5.25%-5.5% range, at the Fed's July 25-26 meeting, but now see about a 25% chance of another rate hike before year's end, down from about 35% before the report, Reuters reported. 

Meanwhile, there are expectations in the market that the Bank of Japan could tweak its yield-curve-control policy at its meeting later this month and this has also been giving a boost to the Japanese yen. However, analysts at Rabobank argued that the ''concerns about the outlook for the global economy amid tighter monetary policy in the US and other G10 economies suggest that the window of opportunity for a tweak in BoJ policy is likely to be narrow, and possibility non-existent.''

The analysts are also of the mind that while the CPI data was soft, the US dollar will be supported due to a low-world growth outlook that ''is likely to keep risk appetite in check and lend support to the safe-haven USD medium term.'' 

''Thus, while a soft US CPI inflation report today is set to weigh on the USD near-term,'' they said, ''we do not anticipate that this will mark the start of a long-term trend of sustained USD selling.''

USD/JPY technical analysis

138.42 is a prior swing point on the daily chart that could prove to be a key level. On the upside, if there is an immediate correction, there is an area of imbalance between 140.36 and 141.28 around a 38.2% Fibonacci retracement area.