- USD/JPY eroded a major part of the overnight gains to the highest level since March 2020.
- Mixed signals on the US inflation kept the USD bulls on the defensive and exerted pressure.
- An uptick in the US bond yields might help limit the downside, despite softer US macro data.
The USD/JPY pair maintained its offered tone through the early North American session and was last seen hovering near daily lows, around the 110.80-75 region.
Having struggled to find acceptance above the 111.00 mark, the USD/JPY pair witnessed some selling on Thursday and for now, seems to have stalled its recent move up to the highest level since March 2020. The pullback was exclusively sponsored by a modest US dollar weakness, which remained on the defensive after mostly softer US macro releases.
The final GDP report confirmed that the US economy expanded by a 6.4% annualized pace during the first quarter of 2021, matching the preliminary estimates. Separately, Durable Goods Orders and Initial Weekly Jobless Claims fell short of market expectations. This, along with mixed signals on the US inflation acted as a headwind for the USD.
That said, the underlying bullish sentiment in the financial markets – as depicted by indications of a strong opening in the US equity markets – undermined the safe-haven Japanese yen. This, in turn, was seen as a key factor that held traders from placing any aggressive bearish bets around the USD/JPY pair and might help limit the downside.
Hence, it will be prudent to wait for some strong follow-through selling before confirming that the recent positive move witnessed over the past two months or so has run out of steam. This will set the stage for some meaningful corrective slide and drag the USD/JPY pair back towards challenging the key 110.00 psychological mark.
Technical levels to watch
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