USD/JPY bears lurking at bulls come up for air

• USD/JPY is pressured on the front side of the trendline resistance.
• US Dollar was sent lower on the US CPI data and Fed expectations. 

Against the Yen, the US Dollar dropped to a one-week low of 134.65 and is currently down 1.5% following the US Consumer Price Index that showed that inflation rose less than expected last month.

Subsequently, there are higher expectations that the Federal Reserve will slow the pace of rate increases after its two-day meeting on Wednesday.

US CPI below the mark

• US CPI MoM Nov: 0.1% (est 0.3%, prev 0.4%).
• US CPI Ex Food And Energy MoM Nov: 0.2% (est 0.3%, prev 0.3%).
• US CPI YoY Nov: 7.1% (est 7.3%, prev 7.7%).
• US CPI Ex Food And Energy YoY Nov: 6.0% (est 6.1%, prev 6.3%).

The Consumer Price Index has led to the markets pricing the terminal Fed rate down to 4.86% vs 4.98% prior to the report and US stocks on Wall Street opened bid in the cash market. The NASDAQ jumped over 400 points but was met with supply as traders took profits ahead of the Fed.

While the CPI report supported widely held expectations for a smaller Fed rate hike of 50 basis points and even as the Fed funds futures priced in a lower terminal rate, the US dollar found some traction late in the day. DXY, an index that measures the greenback vs. a basket of currencies, including the Yen, is down some 0.9% at 104.03 but off the lows of the day of 103.586. 

USD/JPY technical analysis

USD/JPY is pressured on the front side of the trendline resistance and the 130.00 area could be tested in the coming days or weeks if the bears stay the course. If fact, as per the following weekly chart, if the Fed turns out to be uber-dovish, the level could be reached before the close of the week. It has not been uncommon for the yen to fly 500 pips in a week: