USD / JPY consolidates below the 110.00 level ahead of US inflation data.

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  • USD / JPY consolidates its recent gains to the highest level since April 9.
  • The previous day’s rise in US bond yields offers some support for the dollar.
  • Market optimism weighs on the safe-haven yen and supports the pair’s upward move.
  • The bulls are getting cautious and expecting a new boost in the Fed’s preferred inflation gauge.

The pair USD/JPY now appears to have entered a bullish consolidation phase, hovering within a narrow range just below the key psychological level of 110.00 during the European session on Friday.

The pair has struggled to capitalize on this week’s positive move to the highest level since April 9 and has witnessed moderate and limited price action within a range on the last trading day of the week. Investors now appear reluctant and are holding back from opening new positions ahead of another US inflation data to be released later during the American session.

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Meanwhile, a combination of factors has acted as a tailwind for the USD / JPY pair and has helped limit any significant pullbacks, at least for the time being. The previous day’s sharp rise in US Treasury yields., sparked by news about the Biden administration’s multi-billion dollar spending plan, helped put a possible bottom under the US dollar.

According to the New York Times, the president Joe Biden to Plan $ 6 Trillion in U.S. Federal Spending for Fiscal Year 2022. This further fueled concerns about rising inflationary pressures, which they could force the Fed to act faster and tighten its monetary policy sooner rather than later, which has offered some additional support to the US dollar.

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Meanwhile, this latest development further boosted already strong global risk appetite sentiment. This has been evident by a prolonged rally in stock markets, what has weighed on the demand for the Japanese yen of safe haven and it has done little to inspire the pair’s bears or fuel any selling around USD / JPY, at least for the time being.

The US Bureau of Economic Analysis is scheduled to release the Fed’s preferred inflation gauge, the underlying PCE price index, during today’s American session. A stronger figure will validate the higher inflation scenario and reignite fears of an earlier-than-expected Fed tightening. This could be enough to provide further momentum to the USD / JPY.

That said, investors could expect evidence that the price rise will hold, suggesting that the immediate market reaction could prove short-lived. However, the short-term bias appears to be leaning in favor of the bulls and supports prospects for an extension of the positive move seen since earlier this week.

USD / JPY technical levels


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