USD/JPY collapses below 115.00 after hot US CPI figures amid falling US T-bond yields

• The USD/JPY drops 100-pips in the North American session.
• The market was positioned for a higher US inflation reading, per the reaction weakening the greenback.
• USD/JPY Technical Outlook: Bullish despite Wednesday’s pullback towards a four-month-old upslope trendline.

On Wednesday, after the Bureau of Labor Statistics (BLS) revealed that US inflation reached a level not seen since 1982, the USD/JPY plunges, exchanging hands at 114.60 at the time of writing.

Hot US CPI reading fail to boost the greenback as US T-bond yields slide

Broad US dollar weakness is due to the market participants’ expectations of the US CPI inflation figures. The Consumer Price Index (CPI) for December rose by 7.0%, higher than the 6.8% estimations, but it did not come as higher than market positioning. That is witnessed by the market reaction, sending the US 10-year Treasury yield down almost two-basis points, sitting at 1.727%, while the US Dollar Index just breached under the 95.00 handle for the first time since November 15, 2021.

In the meantime, the so-called Core CPI number for the same period, which excludes volatile items like food and energy, rose by 5.5%, a tenth up from the 5.4% foreseen by analysts.

Putting US consumer inflation figures aside, the USD/JPY trader’s focus turns to Thursday. The Japanese economic docket will feature the Machine Tool Orders (YoY). Across the pond, the US economic docket will feature the Producer Price Index for December, Initial Jobless Claims (IJC), and Fed speaking, led by the Vice-Chairwoman nomination of Lael Brainard. She will appear at the US Senate Banking Committee. 

USD/JPY Price Forecast: Technical outlook

With US consumer inflation data on the rearview mirror, the USD/JPY dipped near a four-month-old bullish trendline, drawn from September 2021 cycle lows, which passes above the 50-day moving average (DMA), which lies at 114.24. 

Fundamentally and technically driven, the USD/JPY is upward biased. The daily moving averages (DMAs) reside well below the spot price, in a bullish order, meaning the shorter-time frame is above the longer-time ones.

That said, USD/JPY’s pullbacks could be viewed opportunities for USD bulls if that is the case. The following support lies at the above-mentioned trendline, around the 114.35-45 area at press time. A breach of the latter would expose the 50-DMA at 114.24, followed by 114.00

To the upside, the pair’s first resistance would be 115.00. A break above the psychological double-zero level would expose November’s 24 of 2021, daily high at 115.52, followed by a challenge of the YTD high at 116.35.