Title: USD/JPY sees upside above 135.50 despite lower consensus for the US Inflation

August 8, 2022 02:02 AM ET

By: AnalysisWatch

The USD/JPY currency pair is in a stock distribution phase after a vertical upward movement from the critical support at 133.00. The auction in a stock distribution phase after an upward movement indicates a continuation of the upward movement after the peak of the volatility decline. The asset will initially favor an establishment above 136.00 and later move towards the all-time highs around 139.40.

The US Dollar Index (DXY) received a boost after the positive US Nonfarm Payrolls (NFP) data. The US Nonfarm Payrolls (NFP) landed at 528k, well above expectations of 250k and the previous release of 372k. The unemployment rate also fell to 3.5% from consensus and the previous reading of 3.6%.

One fact that worries market participants is the stagnant average hourly wage. The economic data remained unchanged at 5.2%. Inflationary pressures are forcing households to pay more for comparable purchases, and stagnant income growth is creating headwinds for households at this time, which could significantly weaken consumer confidence.

This week, U.S. inflation data will be the focus of attention. The consensus is for inflation to fall to 8.7% from the previously released 9.1%. This is thanks to weak oil prices in July, which led to some exhaustion signals in the inflation data. If this is repeated, it could weigh significantly on the DXY.

On the Tokyo front, the continuation of the Bank of Japan's (BOJ) ultra-loose monetary policy will continue to haunt yen bulls. The BOJ is keen to boost the growth rate and bring it back to pre-pandemic levels as quickly as possible. Therefore, it is crucial to pump liquidity into the economy so that investment can push up the wage price index and inflation can stay above 2%.