JAPANESE YEN TALKING POINTS

USD/JPY pulls back from a fresh weekly-high (110.49) as the updates to the U.S. Consumer Price Index (CPI) instill a mixed outlook for the real economy, and the dollar-yen exchange rate may continue to consolidate ahead of the Federal Open Market Committee (FOMC) interest rate decision on June 13 as market participants weigh the outlook for monetary policy.

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USD/JPY ADVANCE STALLS AHEAD OF FOMC AS U.S. CPI FAILS TO IMPRESS

Despite the uptick in both the headline and core CPI, a deeper look at the report showed Average Hourly Earnings holding flat in May, with Average Weekly Earnings narrowing to 0.3% from 0.4% in April.

Signs of subdued wage growth may impede on the Federal Reserve’s hiking-cycle as ‘market-based measures of inflation compensation remain low,’ and the central bank may soften its hawkish tone throughout the second-half of the year as ‘inflation on a 12-month basis is expected to run near the Committee's symmetric 2 percent objective over the medium term.’

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With that said, the U.S. dollar stands at risk of facing a more bearish fate if the FOMC may merely stick to the current script, and ongoing projections for a neutral Fed Funds rate of 2.75% to 3.00% is likely to produce headwinds for the U.S. dollar as market participants scale back bets for four rate-hikes in 2018. 

USD/JPY DAILY CHART

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• USD/JPY appears to be making a run at the May-high (111.40) as breaks the monthly opening range, with the Fibonacci overlap around 111.10 (61.8% expansion) to 111.60 (38.2% retracement) on the radar as the pair initiates a fresh series of higher highs & lows.
• However, failure to test the May-high (111.40) may give way to range-bound prices, with a move break/close below the 109.40 (50% retracement) to 110.00 (78.6% expansion) region raising the risk for a move back towards 108.30 (61.8% retracement) to 108.40 (100% expansion).

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