FX Daily Strategy: Asia, May 22nd
Japan National CPI Likely Shielded from Shock Now
And its impact on JPY Muted
DXY Remain Supported By Uncertainty
The April Japan National CPI will be released in Friday's Asia session and will likely have little surprise. Headline and Ex-fresh food will remain below 2% from base effect and extension of energy stimulus. However, core-core CPI is expected to be above 2%, yet momentum may be stalled due to poor household spending. The overall trend is not to be dismissed despite the shadow of stimulus. Japanese wage growth remains above 2% and should stimulate consumption with real wage staying in the positive territory.
The data's impact on JPY will be muted, given market participants' focus on JGB yields and the overall fiscal picture. Unless there is a big hawkish surprise, the focus remains on BoJ's intention in special bond purchase program and the change in pace of tapering in the coming meeting.
On the chart, there is little change, as prices settled back from the 159.25 high to consolidate at the 159.00 level. However, pressure remains on the upside and break here will further extend strong gains from the 155.00 low to resistance at 159.45 January high then the 160.00 figure which is expected to cap. Meanwhile, support remains at 158.60 Monday's low. Below here will see room for deeper pullback to the strong support at 158.00/157.50 area. Would take break of the latter to fade the upside pressure and open up room for deeper pullback to the 157.00/156.00 congestion area.
The ongoing geopolitical uncertainty is providing support for the DXY. Whether a deal is made, Iran could still harass ships passing the Strait and disrupting oil supply. There maybe relief rally from a deal being announced but if there is any disruption persisting, the USD will remain supported with inflatioanry pressure keeping the Fed hawkish.
On the chart, there is little change as prices extend consolidation following the test of congestion support at 99.00. Both daily and weekly readings are improving, suggesting room for further gains. A close above resistance at 99.50 will open up congestion around 100.00, where already overbought daily stochastics could prompt fresh consolidation. Meanwhile, support remains at congestion around 99.00. A test beneath here, if seen, should give way to consolidation above further congestion around 98.50.