USD/JPY holds weaker below 111.00 handle, over 1-week lows

   •  Trump’s comments keep exerting downward pressure on the USD.
   •  Fed rate hike expectations might help limit further downside.

The USD/JPY pair remained under some selling pressure at the start of a new trading week and fell below the 111.00 handle, or 1-1/2 week lows.

The pair extended last week's sharp retracement slide from six-month tops and continued losing ground for the third consecutive session amid persistent US Dollar weakness, triggered by the US President Donald Trump's comments. 

During an interview with CNBC, Trump upped the ante on the trade war front and said that he was prepared to impose tariffs on all $505 billion in Chinese goods imported to the US. Trump also criticized the Fed's monetary tightening and showed displeasure over the recent USD strength. 

Market participants, however, remain convinced that the Fed will stick to its plan to raise interest rates at least two more time in 2018 and the same was evident from the US Treasury bond yields. In fact, the benchmark 10-year yield held around the three-week high level of 2.89% and might now contribute towards limiting further downside. 

Technical outlook 

Omkar Godbole, Analyst and Editor at FXStreet writes: “A close below the rising trendline would only validate the bearish Doji reversal and indicate the rally from the March 26 low od 104.63 has ended. As a result, the spot risks falling to 110.52 (ascending 50-day MA) and may test demand at the 200-day MA support of 110.10.”

“A strong rebound from the trendline support would and a close above 111.40 (May 21 high) would shift risk in favor of a re-test of 113.17 (Thursday's high),” he adds further.