Dollar/yen dropped close to 1.0 percent last week, as the yen posted strong gains for a second straight week. The pair touched a low of 108.28 last week, its lowest level since mid-January.

USD/JPY fundamental movers

Trade tensions between the U.S. and China have escalated, and a trade deal between the two super-economies has not materialized, despite assurances from U.S. officials that substantial progress has been made. China has reacted angrily to U.S. sanctions on Huawei and has suspended trade talks with the U.S. Investors remain nervous about the U.S.-China conflict and the weak global economy, and this has boosted the safe-haven yen in recent weeks. The yen posted sharp gains in the month of May, climbing 2.8%.

In the U.S., second-estimate GDP for Q1 posted a strong gain of 3.1%, matching the estimate. This follows the initial reading of 3.2%, which easily beat the forecast of 3.2%. The Core PCE Price Index, the preferred inflation gauge for the Federal Reserve, improved to 0.2% in April, up from 0.0% a month earlier. Consumer confidence sparkled, as CB Consumer Confidence jumped to 134.1, above expectations.

See all the main events in the Forex Weekly Outlook

USD/JPY Technical Analysis

113.80 was a resistance line in November.

113.15 was a swing high back in July.

112.73 was an important resistance line in October.

112.25 has held in resistance since December.

111.69 was the high point of the current slide which started in early May. 111.15 follows.

110.40 (mentioned last week), is the next resistance line.

109.73 remained relevant during the week.

109.35 is the next resistance line.

The pair broke through 108.70 late in the week.

108.10 was a swing low in late May.

107.50 capped the pair in early April.

106.61 is next.

105.55 is the final support level for now.

USD/JPY Daily Chart

USD/JPY Sentiment

I remain neutral on USD/JPY.

With no trade negotiations scheduled between the U.S. and China, the trade war may stay in a holding pattern. Risk appetite remains fragile, and the yen remains an attractive asset for nervous investors. At the same time, the U.S. economy is performing well, with GDP above 3.0% in the first quarter.