USD/JPY has breached 137.50 and eyes 138.00, but bears are in town

• USD/JPY bears have started to move in on the hourly time frame. 
• There is a focus on 138 but 137 is vulnerable to profit-taking ahead of US CPI later this week. 

USD/JPY is a mixed bag given the risk-off tones that support both the yen and the US dollar, how far it has climbed already, earnings season and critical US data that is approaching fast this week. At the time of writing, the pair is trading at 137.20 and is on the back foot, falling from a high of 137.44 in the session with eyes on 137.14 the low. The pair is up 1.12% for the week and 2.10% for the month so far. 

It was a risk-off start to the week which fuelled a bid on the US dollar. The greenback head to a 24-year high on the yen on Monday following Japan's ruling conservative coalition's strong election. The markets are of the mind that the yen will therefore stay lower for longer despite the tendency to buy into the yen at times of uncertainty and risk-off sentiment. Instead, global growth fears have helped the safe-haven flows find their way into the US currency more broadly which has given rise to the fresh bull cycle highs in the pair. The dollar climbed to as high as 137.75 yen and the firmest since late 1998. The dollar index (DXY) reached a fresh cycle high of 108.232, but it has since pulled back to 108.069 the low in Asia on Tuesday. 

For the day ahead, the markets will be driven by sentiment but traders may be reluctant to stay in the trend given how far the greenback has come already ahead of the US data this week. This could give rise to some temporary profit-taking which is what could be playing out in USD/JPY currently.  The main focus following Friday's evidence that the US jobs market is strong from the US Nonfarm Payrolls outcome will be the inflation data on Wednesday. Markets have been reassured to expect a 75bp hike at the July Federal Reserve meeting following the labour market report from Friday and will be looking for further evidence in this week's inflation data. 

''Core prices likely stayed strong in June, with the series registering a 0.5% MoM gain. Shelter inflation likely maintained momentum, but we look for airfares to retreat following double-digit m/m expansions in March-May,'' analysts at TD Securities said. ''Separately, we expect gasoline prices to remain a notable force, accelerating to an 11% MoM pace. Our MoM forecasts imply 8.9%/5.7% YoY for total/core prices.''

USD/JPY technical analysis

• USD/JPY Price Analysis: Bulls take on fresh bull cycle highs, but how far can this run?

As per the prior analysis above, the bearish scenario could be starting to play out in today's Asian session: