USD/JPY: Dollar falls on concerns of higher US bond yields

  • USD falls despite an upbeat US CPI.
  • Higher US bond yields are seen negative for the economy and equities. 

USD/JPY is now trading around 107.00 in New York session, falling by almost 0.8% after the US stock market U-turned from negative to positive following the key US inflation data making.  

The report on the US inflation rose 2.1% over the year in January, beating the market expectation with closely watched core inflation rising 1.8% y/y.  In the knee-jerk reaction, the USD/JPY jumped as high as107.89. Although higher CPI may be good for USD theoretically, as Fed may be compelled to hike 3 times in 2018, higher US interest and higher bond yields are not good for the overall US economy and the stock market as borrowing costs will rise. This is why it might be seen as long-term US Dollar negative. 

Should the US stock market fall as a consequence of higher inflation, the USD might come under pressure on the concern of risk aversion.

At the same time, the US core retail sales fell 0.3% m/m in January indicating "stagflation" or a combination of the upbeat core CPI and negative core retail sales. 

Technical view

Price action suggests that USDJPY now has to sustain above 107.00-107.30 area; otherwise, it is seen retracing to 106.10 and 105.65-105.40 zone. For any meaningful recovery, it must stays above 108.00-108.50 area for 109.00-109.75 and then 110.20-110.55/110.85 zone in the days ahead.

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