USD/JPY drops to fresh three-week lows, eyeing mid-108.00s ahead of US macro data

• USD/JPY witnessed some follow-through selling for the fourth consecutive session on Thursday.
• Bearish traders took cues from the ongoing decline in the US bond yields and sustained USD selling.
• Thursday’s US monthly Retail Sales figures for March eyed for some meaningful trading opportunities.

The emergence of some fresh USD selling during the early European session dragged the USD/JPY pair to three-week lows, around the 108.65 region in the last hour.

The pair extended its recent retracement slide from the vicinity of the 111.00 mark or one-year tops and lost some additional ground for the fourth consecutive session on Thursday. This also marked the seventh day of a negative move in the previous nine and was sponsored by a combination of factors.

The US CPI report for March – released earlier this week – reinforced the Fed’s view that higher inflation will be transitory. Apart from this, repeated assurance by Fed officials now seemed to have convinced investors that the US central bank will keep interest rates lower for a longer period.

The ongoing decline in the US Treasury bond yields from a 14-month peak touched in March provided evidence of reduced market bets for an earlier than anticipated Fed lift-off. This, in turn, continued weighing on the US dollar and was seen as a key factor exerting downward pressure on the USD/JPY pair.

Apart from this, Thursday’s downfall could also be attributed to some technical selling following the overnight close below the 109.00 mark. That said, the underlying bullish tone in the financial markets might undermine the safe-haven Japanese yen and help limit the downside for the USD/JPY pair.

Investors also seemed reluctant to place any aggressive bets, rather preferred to wait for fresh clues from the US macro data. Thursday’s US economic docket highlights the releases of monthly Retail Sales figures for March, Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims.

Apart from this, the US bond yields will influence the USD and produce some short-term trading opportunities around the USD/JPY pair. The focus might then shift to a slew of key Chinese economic data on Friday, which will play a key role in driving the risk sentiment and the safe-haven JPY.

Technical levels to watch