Japanese yen slips, is 111 next?

The Japanese yen is in negative territory Wednesday trade. In the North American session, USD/JPY is trading at 110.77, up 0.43% on the day. Last week, the yen climbed as high as 110.82, its highest level since April 1, and could find itself in 111-territory shortly.

Inflation levels remain at very low levels in Japan, and with the economic downturn due to Covid, there is little reason to expect that this will change anytime soon. BoJ Core CPI, the Bank of Japan’s preferred gauge of inflation, continues to languish and came in at zero in April. The index has managed just one gain in the past 14 months.

Powell testimony eyed

Fed Chair Powell can state with confidence that he hasn’t veered from his dovish stance. After the FOMC meeting, Powell urged the markets to take the new timeline with a grain of salt, but his message fell on deaf ears, as the dollar recorded sharp gains.

In prepared remarks which Powell will read to Congress later in the day, the Fed Chair has reiterated that inflation is transitory. Some investors might be scratching their head hearing this, given that US inflation has hit a 13-year high. Still, there’s no point arguing with the market, and dovish comments from Fed member John Williams have only reinforced the market’s perception of the Fed remaining dovish.

The US economy is firing on all cylinders, and the services and manufacturing sectors are expected to show significant expansion in May. The Services PMI is expected in at 70.0, slightly lower than the April reading of 70.4 points. Manufacturing PMI is projected at 61.5, down from 62.1. With the 50-level separating contraction from expansion, both sectors are in excellent shape. If the readings are within expectations or higher, the US dollar could get a lift.

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USD/JPY Technical

• USD/JPY is putting pressure on resistance at 110.82. Above, there is resistance at 111.43
•  On the downside, there is support at 109.61, followed by 109.01

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