USD/JPY retreats after hitting a fresh 24-year high

• Japanese yen drops across the board despite the slide in stocks.
• US inflation number above expectations boosts US yields
• USD/JPY peaks at 137.86, then slides back under 137.50.  

The USD/JPY jumped after the release of the US June CPI to 137.86, reaching a fresh 24-year high. After the beginning of the American session pulled back to 137.10. As of writing, it is moving back to the 137.50 area.

Inflation keeps rising, so does the dollar

Inflation in June rose in the US to 9.1% (y/y), the highest since 1981. The number was above the 8.8% of market consensus. Immediately after the report the dollar surged to fresh highs across the board and then pulled back.

The reading keeps the Fed on its way of aggressive interest rate hikes. “It will take at least several consecutive monthly inflation readings of slowing price growth for the Federal Reserve to believe that it has inflation in check”, said analysts at Well Fargo.

US yields hit weekly highs after the numbers and then pulled back, even below the level they had before inflation figures. While in the short-term, market participants see the Fed raising rates, the odds of rate cuts in 2023 are growing.

In Wall Street, the Dow Jones is falling 0.75%, and the Nasdaq drops by 0.45%. Despite risk aversion, the Japanese yen is among the worst performers.

The USD/JPY initial support is located at 137.00/10 followed by 136.45 (July 12 low). On the upside, 137.60 is becoming a critical resistance and a consolidation above should open the doors to a new record and 138.00.

Technical levels