Dollar/yen finally made a big move, breaking above 110 and even topping 111 at one point. US yields were the primary driver. Can it continue higher? Lots of Fed-related events and also Japanese inflation will have their say.

USD/JPY fundamental movers

Rising US yields and also downbeat Japanese data

The dollar resumed its rises as bond yields pushed higher. The 10-year Treasury yields reached 3.13% and the 30-year one broke above 3.25%. Other maturities followed. Markets took advantage of upwards revisions in the retail sales report to move up. In general, US data was OK but the moves were not directly related to the figures.

In Japan, GDP contracted by 0.2% in Q1. This is not an outright recession, but still a worrying sign. In addition, the national inflation figures showed a deceleration. It is hard to see the BOJ making a move anytime soon.

In the geopolitical front, the peace process in the Korean peninsula met a bump on the road. A US-South Korean military drill angered the North and also put the Kim-Trump summit in doubt. So far, the issues seem to have been resolved and the safe-haven yen did not receive any flows.

Fed-speak, durable goods orders, Japanese inflation

The FOMC Meeting Minutes on Wednesday stand out as a key event. They may reveal a bit more about the meaning of “symmetric” in relation to the inflation target. Will the Fed tolerate higher inflation? In addition, a long list of Fed speakers is lined up, with the best waiting for last: Chair Jerome Powell will speak on Friday.

Among the economic figures from the US, durable goods orders stand out. This feeds into GDP and reflects long-term inflation. Also, watch out for sales of new and existing homes.

In Japan, we will get another inflation figure: the Tokyo Core CPI, a fresh number for May, the current month. Year over year, it is expected to remain unchanged at 0.6%, far away from the 2% target.

See all the main events in the Forex Weekly Outlook

Key news updates for USD/JPY

USD/JPY Technical Analysis

112.20 supported the pair back in December. It is followed by 111.50 that capped the pair in January. The May high of 111.20 is next.

Further down, 110.50 was a swing high in February. The round number of 110 serves as a psychological level. 109.50 held the pair back in late April.

109 was a pivotal line within the range. 108.30 was the low seen in late January. Even lower, we find 107.50 capped the pair in early April and is a strong line.

106.50 was a resistance line in mid-February. and then resistance in early March. 105.55 was the first swing low.

USD/JPY Daily Chart

USD/JPY Sentiment

I am bullish on USD/JPY. Unless we get a nasty surprise from the ongoing peace talks around North Korea, the divergence between the Fed and the BOJ could continue pushing the pair higher.