A new bearish start for USD/JPY, as it retreated at the beginning of this week's trading.
The support level reached 109.35 before settling around 109.50 at the beginning of trading on Tuesday, waiting for new developments. The currency pair's recent bounce gains pushed it towards the 110.20 resistance level and as I mentioned before, surpassing that most important psychological resistance of 110.00 is to further control the bulls' performance. The US dollar, which confused most observers by its rally in the first quarter of 2021, fell broadly in April and May.
Ironically, the drivers are the same: US averages and relative economic strength. As US Treasury yields rose sharply in the first quarter, this helped the dollar recover from the accelerating slide in November and December 2020. However, it fell in April and did not get much momentum in May. The rebounds, such as the response to the sudden acceleration in the US CPI to more than 6% at an annual rate in the first four months of the year, were short-lived.
Fed officials say it is too early to consider tapering off, and even the few indicating further willingness to discuss it require a few more months of solid data. This means outside of the updated forecast, no change in its stance should be expected from the FOMC meeting scheduled for June 15-16. A Bloomberg survey found that a majority expect the tapers to begin in the fourth quarter.
On the other hand, Japan is going through a more difficult time. It is one of the few countries experiencing deflation (negative annual CPI). Although casualty figures remain relatively modest, the official state of emergency covering a region that accounts for around 40% of GDP has been extended through June. A proper recovery may begin in the third quarter, but it may not be enough time to help Japanese Prime Minister Suga, who faces competition for the party leadership in September, and his decision to go ahead with the Olympics (the opening ceremony on July 23) is not very popular. A decision is expected in June on whether to allow local viewers to attend in person. The number of foreign attendees in March was from 600,000 to less than 70,000.
According to the technical analysis of the pair: The bulls' recent attempts to control the general trend of the US dollar against the Japanese yen will not succeed without penetration and stability above the psychological resistance of 110.00, because it may increase the buying operations and stimulate the technical indicators to head up. In general, I still prefer to buy the currency pair from every downside level and the closest support levels for the pair are currently 108.90, 108.00 and 107.45, respectively.
The dollar-yen currency pair will be affected today by investor appetite for risk or not, as well as reaction from the announcement of the US ISM Manufacturing PMI reading and the rate of construction spending.