USD/JPY fails again to break 110.00, turns flat for the day and the week

• US Dollar gains momentum amid higher US yields and a rally in Wall Street. 
• Yen posts mixed results across the board, off highs. 

The USD/JPY pair found support around the 109.50 area and bounced to the upside, erasing losses. It rose to test again the 110.00 zone but failed to break higher and pulled back modestly. 

Near the end of the week trades at 109.85/90 practically flat for the day and the week. The 110.00 continues to be a key barrier. Today it tested that level several times but it was unable to break higher. If it managed to consolidate on top it could clear the way to more gains. On the flip side, the relevant short-term support might be seen at 109.45/50: a firm break below would leave the pair vulnerable to more losses. 

From a fundamental perspective, the rebound from 109.50 was helped by a move higher in US yields and also the recovery in equity prices. Main stock indexes opened in negative in Wall Street and then erased losses. Still, US yields are headed toward the biggest weekly decline since March. The DXY is up for the fourth-day in-a-row, hovering slightly below 98.00. 

Data from the US also helped the greenback. The preliminary reading for May showed that the University of Michigan's Consumer Sentiment Index rose to its highest level in 15 years at 102.4, significantly above market expectations of 97.5.

Week ahead

Trade will continue to be a key driver of risk sentiment next week. In the US, key economic events include the release of the FOMC minutes from the latest meeting, PMI’s (Thursday) and Capital Expenditure (Friday) year.

“In Japan, several key figures are set to be published next week. We start the week off with the first Q1 national accounts. The Japanese economy slowed down significantly in Q1. For a while, domestic demand has kept the economy afloat but as, in particular, Chinese and ASEAN demand for Japanese goods has continued to decline, it looks to us as though the economy went in to reverse in Q1. We estimate GDP declined 0.4% q/q. On Wednesday, the April export figures tick in. Exports have been weak recently and although PMIs indicate better days in the manufacturing sector, new export orders fell at the fastest pace in April, pointing to another tough month for Japanese exporters. On Thursday, we should know more about the manufacturing sector, when the flash PMI ticks in. Last, we are due to get April inflation figures on Friday. CPI excluding fresh food stood at 0.8% y/y in March and Tokyo inflation indicates a pickup. However, significant cuts in mobile phone service charges are set to weigh heavy on inflation within the coming months,” explained analysts at Danske Bank.