FxWirePro: USD/JPY trades below 5-DMA, dollar extends weakness ahead of key inflation data

Chart - Courtesy Trading View 

USD/JPY was trading 0.42% lower on the day at 142.22 at around 09:40 GMT.

The pair is trading below 5-DMA, technical indicators show scope for further weakness.

Caution prevails ahead of the release of key US inflation figures, while improved sentiment keeps downside bias.

Analysts expect US headline consumer prices to have eased to 8.1% over the last twelve months (from 8.5%).

Core inflation is expected to remain steady at 0.3% in August and tick higher to 6.1% on yearly basis, up from 5.9% in July.

Fed survey released on Monday showed consumer expectations for US inflation over the coming years declined sharply, keeping US dollar depressed.

A weaker US CPI print will point to a sustained decline in US inflation and fuel speculations for less aggressive policy tightening by the Fed, a major drag for the dollar.

On the other side, stronger inflation figures will revive bets for faster interest rate hikes by the Fed, thereby lifting the dollar.

Major trend is bullish, but technical indicators on the intraday charts show scope for further downside. 

Stochs and RSI are on verge of bearish rollover from overbought levels. Upside remains capped at 5-DMA. 

Price action hovers around 200H MA. Break below will see more weakness. Next major support lies at 21-EMA at 139.81.