USD/JPY plummets below 110.00 handle post dismal US macro data

The USD/JPY pair failed to build on early up-move and tumbled to session lows, below the key 110.00 psychological mark following the release of US macro data.

Spot came under some fresh selling pressure after data released from the US showed headline inflation, as measured by CPI, unexpectedly dropped by 0.1% during May, dragging the yearly rate lower to 1.9% as compared to 2.2% previous and 2.0% expected. 

Adding to the disappointing inflation figures, monthly retail sales contracted by 0.3% during May, while core sales (excluding autos) also dropped by 0.2% on a monthly basis.

Although today’s disappointing data might have done little to stop the Fed from raising interest rates but would certainly be looked upon as a possible sign of near-term economic slowdown, which derails expectations for a faster Fed rate-tightening cycle. 

The same is evident from a sharp slump in the US treasury bond yields, which triggered a fresh wave of selling pressure around the US Dollar and dragged the pair to session lows near 109.65 region. 

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Investors would now keenly scrutinize the FOMC policy statement and subsequent press conference in order to evaluate possibilities of any further rate-hike moves through 2017, which would eventually determine the pair’s near-term trajectory. 

Technical outlook

Omkar Godbole, Analyst cum Editor at FXStreet writes: "The weekly 50-MA has bottomed out and is now sloping upwards. Last week’s candle had a long tail, suggesting dip demand around 109.10 levels. Thus, the pair looks set to break higher from the falling channel/flagpole pattern. The immediate resistance is seen at 111.59, ahead of 112.60 (weekly 100-MA). A steeper yield curve after US CPI release and Fed rate decision could yield a sustained break above 111.59 levels. On the other hand, a weaker CPI and a dovish Fed hike would open doors for a break below 108.13 (April low)."