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USD/JPY rallies further beyond 116.00 mark, eyeing 2021 high post-US CPI

  • USD/JPY rallied hard and shot to over one-month high during the early North American session.
  • Stronger US CPI prints pushed the US bond yields higher and provided a strong lift to the USD.
  • Technical buying above the 115.70 region and the 116.00 mark contributed to the momentum.

The USD/JPY pair caught fresh bids during the early North American session and surged past the 116.00 mark, hitting over a one-month high in reaction to stronger US CPI.

Data released by the US Bureau of Labor Statistics reported this Thursday showed that the headline CPI in the US edged higher to 0.6% in January as against 0.5% expected and the previous. Moreover, the yearly rate jumped to a fresh multi-decade high and accelerate to 7.5% during the reported month. This was above consensus estimates pointing to a rise to 7.3% from the 7% recorded at the end of 2021.

Additional details revealed that the core CPI, which excludes food and energy prices, climbed 6.0% from a year ago as against 5.5% in December and 5.9% anticipated. The data lifted market bets for a 50 bps Fed rate hike in March. This, in turn, pushed the yield on the 2-year US government bond, which is more sensitive to rate hike expectations, to the highest level since February 2020, around 1.434%.

Adding to this, the yield on the benchmark 10-year US note shot back closer to the 2.0% threshold, or the highest level since August 2019 touched earlier this week. This prompted aggressive short-covering around the US dollar and provided a strong boost to the USD/JPY pair. The momentum confirmed a bullish breakout through the 115.70 area and took along some trading stops near the 116.00 round figure.

Sustained break through the mentioned hurdle might have already set the stage for additional gains and supports prospects for a move towards testing 2021 high, around the 116.35 region. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for an extension of the recent appreciating move witnessed since the beginning of this month.

Technical levels to watch

 

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