Release of the US CPI inflation data for December is a key event of the day. The Fed has become more hawkish as of late but Chair Powell said yesterday that reduction in the balance sheet is more likely to come in the later part of the year. However, if tapering and expected rate hikes fail to bring price growth back under control, Fed members may decide to bring balance sheet reduction forward. Strong inflation readings could therefore provide a boost for the USD. Headline CPI is expected to accelerate to 7.0% YoY in December from 6.8% YoY in November. Core CPI is expected to accelerate from 4.9 to 5.4% YoY in December. If actual reading matches expectations, it would be the first time since early-1991 when core price growth exceeded 5% YoY.
Taking a look at the USDJPY chart at H1 interval, we can see that the pair has been trading in a downward channel as of late. The pair has recently tested 100-hour moving average twice (green line) but failed to break above in both cases. Should today's US CPI data beat expectations and USD receives a boost, this moving average will be the first near-term resistance to watch. The 115.60 area hosting upper limit of the channel and upper limit of the Overbalance structure should also offer resistance.
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Source: xStation5
