Breakdown of the latest developments on the global exchanges
Jan 14, 2022, 9:58 AM GMT

Dollar's Freefall Exacerbated by Soaring Inflation, USDJPY at a Major Barrier

Dollar's Freefall Exacerbated by Soaring Inflation, USDJPY at a Major Barrier

The dollar's struggles in the short term keep on increasing following the publication of the latest U.S. CPI and PPI numbers. You can read more about the effect of soaring inflation on the greenback from our latest EURUSD analysis.

Headline inflation reached 7.0 per cent in December, beating the preliminary forecasts and topping a four-decade peak. This positive revision of the consumer price index (CPI) prompted an uptick in selling pressure on the greenback, exacerbating the dollar's freefall.

U.S. MoM Inflation Rate

As can be seen on the 4H chart below, the dollar plummeted against the Japanese yen over the last several hours. The price action of the USDJPY is now about to probe a major support level of historical significance. That is the 38.2 per cent Fibonacci retracement level at 113.586.

Its prominence is bolstered by the fact that it is currently being crossed by the lower end of a significant ascending channel, a potential turning point. Moreover, the 38.2 per cent Fibonacci is also converging with the 500-day MA (in purple).

USDJPY 4H Price Chart

There are, therefore, plenty of potential reasons to prompt a pullback to the support-turned-resistance at 114.200. The latter is currently converging with the 300-day MA (in orange) and 400-day MA (in green). Such a pullback is likely to serve as the second retracement leg (3-4) of a broader 1-5 Elliott impulse wave pattern.

U.S. producers are also facing soaring inflation

The Bureau of Labour Statistics (BLS) also revealed that the producer price index (PPI) contracted only marginally by 0.1 per cent from the 9.8 per cent jump that was recorded a month prior.

These concerning numbers were published just days following Fed Chair Jerome Powell's testimony before Senate, on which he expressed willingness to work towards fostering price stability in 2022.

U.S. MoM Producer Inflation