USD/JPY Current price: 108.35

  • Yen stronger after PboC unexpectedly set a higher reference rate.
  • US May inflation to take center stage in the American afternoon.

The USD/JPY pair is under pressure and trading at weekly lows as risk sentiment deteriorated overnight with mounting tensions between the US and China. The PBoC announced a higher-than-expected reference rate a warning sign for dollar bulls that didn't pass unnoticed. The greenback eases against most major rivals, except for commodity-linked currencies, weighed by the sour tone of equities and easing oil prices. Equities were sharply down in Asia, although European ones are in much better shape, with most indexes firmly higher. Treasury yields, on the other hand, eased, amid increased demand for safety, with the benchmark yield on the 10-year note hovering at 2.12%, down from 2.14%.

In the data front, Japan released the Domestic Corporate Goods Price Index for May, which fell by 0.1% when compared to a month earlier but rose 0.7% YoY. The country also released April Machinery Orders, which brought some relief amid bouncing nicely, up 5.2% MoM and by 2.5% YoY.

The US session will bring MBA Mortgage Applications for the week ended June 7, and more relevant, May inflation figures. The monthly CPI is seen at 0.1% vs. the previous 0.3%, while the market's forecast points to a 1.9% YoY, against 2.0% in April. Core annual inflation is foreseen stable at 2.1%. Better-than-expected numbers could diminish odds for a Fed's rate cut, therefore bring some relief to dollar's bulls.

From a technical point of view, the risk is skewed to the downside for the USD/JPY pair, as, in the 4 hours chart, the price broke below its 20 SMA, while technical indicators entered negative territory, although with a limited momentum downward. The pair is so far holding just above the 23.6% retracement of its latest daily slide, while the daily low has been established at 108.27. Below this last, the next support and probable bearish target comes at 107.81 the multi-month low set early June.

Support levels: 108.25 107.80 107.45

Resistance levels: 108.60 108.90 109.30

View Live Chart for the USD/JPY

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