USD/JPY eases from weekly top as 128.00 probes bulls ahead of Biden-Powell meeting

• USD/JPY retreats from one-week high as market sentiment dwindles.
• Yields remain firm but US dollar struggles to extend recent recovery.
• Japan’s employment, retail numbers came in firmer for April but Industrial Production growth eased.
• Risk catalysts, Biden-Powell meeting will be crucial for short-term directions.

USD/JPY pares daily gains around the one-week top as traders turn cautious ahead of the key meeting between US President Joe Biden and Fed Chair Jerome Powell. That said, the yen pair drops back to 128.00, after refreshing the weekly high with 128.30, heading into Tuesday’s European session.

Having bounced off the monthly low, the US Dollar Index (DXY) struggled to extend the recovery to around 101.70. The greenback gauge’s sluggish moves could be linked to a pause in the US Treasury yields’ rally, as well as mixed concerns surrounding the Fed’s next moves as US President Biden recently signals some measures to battle inflation.

That said, the US 10-year Treasury yields stay mostly unchanged in the last few hours, up 9.3 basis points (bps) near 2.84% at the latest. It’s worth noting that the bond yields dropped the most in six months during May as market players trim bets on the Fed’s aggressive rate hikes after recently downbeat US inflation and growth numbers.

It’s worth noting that the geopolitical fears emanating from Europe and mixed concerns over China’s rebound, considering the recently downbeat activity data, also weigh on the USD/JPY prices.

Above all, anxiety ahead of the Biden-Powell meeting and the full market’s return seem to challenge the pair’s upside momentum. On the same line could be mostly upbeat prints of Japan’s key data, published earlier in Asia. That said, Japan’s Unemployment Rate eases to 2.5% in April versus 2.6% expected and prior whereas the Retail Trade also rose to 2.9% YoY during the stated month, from 2.6% expected and revised down 0.7% prior. However, the preliminary reading of Industrial Production disappoints with -4.8% YoY figure compared to -2.5% market consensus and -1.7% previous readouts.

Moving on, second-tier US activity numbers and Eurozone inflation may entertain USD/JPY traders but major attention will be given to how Powell-Biden talks manage to clarify the Fed and government’s next moves to tame inflation.

Technical analysis

USD/JPY remains on the way to challenging the 21-DMA level of 128.70 unless declining below a three-week-old previous resistance line, around 127.15 by the press time.