The dollar jumped temporarily today following the release of the stronger-than-expected headline inflation numbers for January, before sliding back. To get a better sense of the greenback's overall sentiment, check out our latest EURUSD analysis.
Earlier today, the Bureau of Labour Statistics (BLS) in the U.S. revealed that headline inflation rose to a fresh peak at 7.5 per cent. This performance is the highest on record in exactly forty years, easily beating the preliminary forecasts. This caused an upsurge in buying pressure on the greenback in the short term.
As can be seen on the 4H chart above, the USDJPY pair is currently establishing a new bullish trend following the rebound from the last dip at 113.500. Today's headline inflation data prompted a test of the previous swing peak at 116.300.
The uptrend itself appears to be taking the form of a 1-5 impulse wave pattern, as postulated by the Elliott Wave theory. Given that the price action evidently was incapable of breaking out above 116.300 from the first attempt, a minor dropdown is currently emerging. It is likely to serve as the second retracement leg (3-4) of the broader Elliott pattern.
The dropdown is most likely to find the necessary support at the 61.8 per cent Fibonacci retracement level at 115.256, which is where the correction is likely to bottom out. This is also where the third and final impulse leg (4-5) is likely to begin developing, quite possibly driving the uptrend past the previous swing peak and into uncharted territory.
According to the findings of the report, inflation grew to 7.5 per cent last month, well above the market forecasts of 7.3 per cent. Prices rose mostly owing to the particularly high energy demand. The accelerating pace with which new jobs are being created also contributed to this trend.