USD/JPY refreshes daily lows post-US CPI, focus remains on trade talks

   “¢   Softer than expected US CPI/weaker US bond yields exerts some pressure on the USD.
   “¢   The downside remains limited as investors still await fresh updates on US-China trade talks.

Having failed to capitalize on its early attempted recovery to the key 110.00 psychological mark, the USD/JPY pair refreshed session lows in reaction to softer US consumer inflation figures.

According to the monthly inflation report published by the US Bureau of Labor Statistics, the Consumer Price Index (CPI) ticked higher to 2% from 1.9% on a yearly basis and 0.1% on a monthly basis in April. Meanwhile, the core CPI – excluding volatile food and energy prices, rose to 2.1% yearly rate and 0.3% month-on-month.  

The readings were slightly softer consensus estimates and the initial market reaction turned out to be negative for the US Dollar, now falling below the 97.00 handle and exerting some downward pressure on the major. This coupled with declining US Treasury bond yields further collaborated to the pair’s weaker tone.  

However, the fact that China’s Vice Premier Liu He will remain in Washington for the second day of trade talks was seen as an indication that both sides are still determined to reach a deal. Moreover, a slight recovery in the global risk sentiment dented the Japanese Yen’s safe-haven status and might now help limit deeper losses.  

Nevertheless, the pair remains well within the striking distance of three-month lows set on Thursday and seems all set to end the week with heavy losses, also marking its fourth consecutive week of downfall and the lowest weekly close since early February.

Technical outlook

Valeria Bednarik, FXStreet’s own American Chief Analyst writes: “The 4 hours chart shows that technical indicators have corrected oversold conditions, although the RSI hovers around 34 and the Momentum loses strength below its 100 level, signaling absent buying interest with the pair holding near its lows. In the same chart, the 20 SMA maintains its strong bearish slope, capping the upside around the daily high, all of which favors another leg lower, mainly triggered by disappointing US data in mounting trade tensions.”