Daily Price Outlook
After a three-day streak of gains, the USD/JPY currency pair has dropped below 135.00, moving away from the 20-day and 100-day exponential moving averages (EMAs) located at 134.53 and 134.24, respectively. This decline can be attributed to the decrease in US inflation. The relationship between USD/JPY and the fall in the US 10-year Treasury bond yield is also taken into consideration. As of the time of this report, USD/JPY is trading at 134.22, down 0.73%.
The dovish sentiments expressed in the Bank of Japan's (BoJ) monthly statement do not fully explain the bearish trend in USD/JPY, as the currency pair continues to hover near its weekly lows around 133.90. The decline in USD/JPY is influenced by the overall weakness of the US dollar, which is accompanied by cautious optimism and lower returns on Treasury bonds.
The US Dollar Index (DXY) has fallen for the second consecutive day and is currently trading around 101.35. This decline comes as US inflation dropped below 5.0% for the first time in two years. However, the US inflation data was not as concerning as expected and it seems to have supported the Federal Reserve (Fed) in postponing any rate-cut actions until September 2023, according to Fed Fund Futures.
In April, the US Consumer Price Index (CPI) registered a year-on-year decrease to 4.9%, in line with market estimates of 5.0% inflation. This marks the first reading below 5.0% in two years. On a month-on-month basis, the CPI data met the positive projection of 0.4% and reached 0.1%.
The US 10-year and two-year Treasury bond rates experienced a four-day decline, resulting in the largest daily drop in a week, as concerns about economic slowdown increased demand for US bonds. However, the benchmark US bond rates remain under pressure, fluctuating between 3.42% and 3.91% at the time of this report.
In other news, US policymakers were unable to reach an agreement on the debt ceiling during their initial attempt on Wednesday. Nevertheless, discussions have commenced, and another attempt will be made on Friday, which has boosted market optimism. Furthermore, the absence of significant negative factors in the banking sector, along with strong earnings and generally weaker US data, has alleviated concerns within the banking industry.
USD/JPY – Technical Outlook
The USDJPY tried to drop below the bullish channel's support line, but ultimately ended the day above the line. This may bode well for the day's trading, and may even portend a continuation of the anticipated upward trend. Our bias remains optimistic, with 135.35 and 137.70 as our next primary targets.
If the price drops below the support level at 134.25, it may test the crucial support level at 133.30 before making another attempt to rise.
Today's trade might go either way between the 133.90 support level and the 135.50 resistance level.
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