- USD/JPY makes a modest recovery toward mid-109s in the NA session.
- DXY goes into a consolidation phase below 94.
- Markets stay quiet amid a lack of fresh fundamental drivers.
After failing to remain above the 110 mark, the USD/JPY spent the second half of the week under pressure and dropped to a weekly low at 109.20 before going into a consolidation phase in the NA session. As of writing, the pair is trading at 93.60, adding 0.17% on the day.
Earlier today, the report released by Eco Watcher showed that the Outlook index fell to 49.2 in May from 50.1 and the Current Situation index dropped to 47.1 from 49. Later in the NA session, the only data release from the United States revealed that wholesale inventories, which didn’t show any changes in March, increased by a small 0.1%.
Meanwhile, the 10-year T-bond yield, which generally shows a strong positive correlation with the USD/JPY pair, is virtually unchanged on the day at 2.93%, making it difficult for the pair to find direction. With the trading volume thinning out toward the end of the week, the pair is unlikely to break out of its recent range.
On a weekly basis, the pair is only losing about 10 pips. Next week, the FOMC is going to announce its interest rate decision and will publish its monetary policy statement. Until then, the pair could struggle to determine its next short-term direction.
“The key question for the markets is whether the dot plot still implies 3 hikes for this year or an upward shift to 4 hikes. Our current Fed call is three hikes this year (March, June, September) and an upward shift in the dot plot next week would in itself not change our call. As long as the Phillips curve refuses to materialize, we continue to have our doubts about the Fed’s hiking plans,” Rabobank analysts argued in a recently published report.
Technical outlook
109.95/110 (200-DMA/psychological level) remains as a critical resistance for the pair ahead of 110.25 (Jun. 6 high) and 111 (psychological level). On the flip side, supports are located at 109.20/10 (daily low/50-DMA), 108.10 (May 29 low) and 107.75 (100-DMA).
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