The three-day rally in the USD/JPY spot has stalled in Asia, with the pair failing to take out the 50-DMA hurdle of 110.55 levels.
Reports that the US tax reform guidance is likely to be released before the end of September pushed the spot to a high of 110.69 yesterday, although the end of the day close was below the 50-DMA.
At press time, the currency pair is trading at 110.47 levels. The failure to take out the 50-DMA could be attributed to marginal weakness in the 10-year Treasury yield. Moreover, the yield has risen from 2.06% on Friday to a high of 2.20% yesterday. The yield currently trades at 2.185%.
Eyes US CPI
The core consumer price index is seen rising 0.2% m/m in August. Kathy Lien from BK Asset Management says, " the tax reform talk helped investors shrug off softer than expected producer price report that showed inflation growth rising less than expected in the month of August. Tomorrow's consumer price report should be stronger with Hurricane Harvey driving up gas prices last month."
The further steepening of the yield curve could be seen if the US CPI number betters estimates, in which case the 50-DMA hurdle could be breached in a convincing manner.
USD/JPY Technical Outlook
"The pair struggled after an early top at 110.28, retreating from the level to find strong buying interest around the 110.00 threshold, forcing bears to pull back, resulting later in a bullish breakout that sent the pair up to 110.68. The pair filled the gap left in the past week, but now has this week's one at 107.62 yet to be filled, something quite unlikely for the short term with the pair advancing beyond 110.00. The Japanese macroeconomic calendar has little to offer today, but July industrial production figures, with investors clearly focusing on US inflation. Technically, the pair retains its bullish stance, despite overbought as in the 4 hours chart, the price has continued advancing above its 100 and 200 SMAs, now directionless, whilst technical indicators have stabilized within overbought territory."
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