USD/JPY refreshes session lows, around 109.35 region

The USD/JPY pair retreated nearly 30 pips from the Asian session highs and dropped to fresh daily lows, around the 109.35 region in the last hour.

The pair struggled to capitalize on its early uptick, instead met with some fresh supply near the 109.65 region and has now drifted into the negative territory. This marked the second consecutive day of a downtick and was sponsored by renewed US dollar selling bias. The yield on the benchmark 10-year US government bond retreated further from the 1.70% threshold and kept the USD bulls on the defensive. That said, a generally positive tone around the equity markets might undermine the safe-haven Japanese yen and help limit the downside for the USD/JPY pair.

Despite evidence of rising inflation in the US, a slew of Fed officials reiterated that price pressures from the reopening of the economy would prove transitory and is unlikely to prompt an immediate shift in the Fed's positioning. The Fed Vice Chair Richard Clarida said on Wednesday that weak job growth and strong inflation in April had not changed the central bank's plan to maintain the loose monetary policy. Adding to this, the Fed Governor Christopher Waller said on Thursday that the Fed would not raise rates until it sees inflation above target for a long time or excessively high inflation.

Hence, the market attention turns to Friday's release of the US monthly Retail Sales figures, which will be scrutinized for guidance on whether the upward pressure on prices will persist. This will play a key role in driving the Fed rate expectations, which, along with the US bond yields, will influence the USD price dynamics in the near term. Apart from this, the broader market risk sentiment might further contribute to producing some trading opportunities around the USD/JPY pair on the last day of the week.

Technical levels to watch