USD/JPY Price Analysis – May 11, 2023

Daily Price Outlook

Following three consecutive days of gains, USD/JPY falls below the 135.00 mark, distancing itself from the 20- and 100-day exponential moving averages (EMAs) at 134.53 and 134.24, respectively, in the wake of declining US inflation. The dip in the US 10-year Treasury bond yield, closely related to the USD/JPY pair, is instrumental in this decline. At the time of writing, USD/JPY trades at 134.22, marking a 0.73% drop.

Despite the Bank of Japan's (BoJ) dovish tone in its monthly statement, the USD/JPY has failed to rally, with bearish momentum prevailing and weekly lows near 133.90 revisited early Thursday. The pair is influenced by a general weakening of the US dollar, coupled with cautious optimism and decreased Treasury bond returns.

The US Dollar Index (DXY) is experiencing its second consecutive day of decline, hovering around 101.35 as US inflation dips below 5.0% for the first time in two years. Although the US inflation data fell short of expectations, it was not disappointing enough to deter the Federal Reserve (Fed) from potential rate hikes until September 2023, as suggested by Fed Fund Futures.

However, the US Consumer Price Index (CPI) dropped to 4.9% year on year in April, matching market predictions of 5.0% inflation, marking its first sub-5.0% reading in two years. Month-on-month data, however, aligned with the positive 0.4% forecast and surpassed the previous 0.1% rate.

Meanwhile, US 10-year and 2-year Treasury bond yields, after four days of gains, experienced their largest daily drop in a week due to mounting recession fears boosting US bond demand. However, typical US bond yields remain pressured, fluctuating between 3.42% and 3.91% at the time of writing.

In other news, despite initial unsuccessful negotiations on the US debt ceiling on Wednesday, policymakers have set the groundwork for further discussion among office members, with another attempt scheduled for Friday, contributing to an overall optimistic market sentiment. Additionally, the absence of significant negative banking news, robust earnings, and predominantly weaker US data have helped assuage banking sector concerns.

USD/JPY – Technical Outlook

At present, the USD/JPY currency pair is exchanging hands at the level of 134.200. An examination of the 12-hour timeframe reveals that the pair is being buoyed around the 133.950 level, fortified by an ascending trendline that previously lent support to the pair around 133.600.

This trendline is currently lending support at approximately 133.900. The emergence of a hammer candlestick pattern just above this trendline hints at the potential for a bullish movement in the pair, potentially propelling it towards 134.650 or 135.350 levels.

Conversely, should USD/JPY breach the 133.950 mark, the pair may be steered towards a downward trajectory, potentially dipping towards 133.400 or even below 133 levels.

Therefore, it appears that the 133.900 level may serve as a pivotal point, making close monitoring of the pair's movement essential.