USD/JPY spiked to 111 on higher-than-expected US CPI

With the knee-jerk reaction to the data from the U.S., the USD/JPY pair quickly jumped to its highest level since August 4 at 111.03 before retreating most of the initial gains. As of writing, the pair was trading at 110.63, gaining 0.15% on the day.

Today's data released by the U.S. Bureau of Labor Statistics showed that the Consumer Price Index (CPI) rose 0.4% on a monthly basis in August and advance to 1.9% on a yearly basis. Moreover, the core CPI, which excludes the volatile food and energy prices, stayed unchanged at 1.7% annually, beating the market estimate of 1.6%. Other data from the U.S. revealed that the total number of initial jobless claims decreased by 14K to come in at 284K for the week ending September 9.

• US: CPI for all items rises 0.4% in August as shelter and gasoline indexes increase
• US: Weekly initial claims was 284,000, a decrease of 14,000 from previous week

Although the Fed uses the core PCE price index as its primary inflation gauge, the CME Group FedWatch's rate hike probability, which was at 42% for a 25 bps hike in December, advanced to 51%, showing that markets are now pricing a higher chance of a tightening move before the end of the year.

Technical outlook

With a daily close above 110.80 (100-DMA), the pair could extend its gains to 111.50 (200-DMA) and 112 (psychological level). On the downside, supports are located at 110 (psychological level/50-DMA), 109.40 (20-DMA) and 108.20 (Sep. 11 low). 

• USD/JPY: Downside appears to be limited - Westpac