USD/JPY rally losses steam and retreats towards 118.00

• The USD/JPY retraces from 118.45 YTD highs but clings to the 118.00 ahead of the FOMC.
• A mixed market sentiment keeps bourses seesawing while the US Treasury yields fall.
• USD/JPY Price Forecast: Tuesday’s price action is forming a doji, meaning indecision of bulls and bears.

The USD/JPY slides for the first time in seven days amid a mixed market mood as illustrated by global equities fluctuating between gainers and losers, courtesy of geopolitical jitters. In the FX space, the Japanese yen recovers some ground vs. most G8 currencies, except the risk-barometer AUD. At the time of writing, the USD/JPY is trading at 118.14.

Russia-Ukraine conflict persists, talks to continue

Latest developments in Eastern Europe appoint to continuing talks between Russia and Ukraine, though hostilities remain. Meanwhile, the Ukrainian air force claimed that a Russian drone crossed into Poland before returning to Ukraine, it was shot down by air defenses, while Russia’n Minister of Defense reported that they had taken control of Kherson Ukraine, according to Sputnik.

Yields of US Treasuries retrace and demand for the greenback diminishes

In the meantime, the USD/JPY is trading mostly flat in the day, underpinned by falling US Treasury yields, led by the 10-year T-note down three basis points, sitting at 2.110%. The greenback trades with losses, with the US Dollar Index under the 99 mark, at 98.79, down 0.21%.

An absent Japanese economic docket leaves USD/JPY traders leaning on US economic data. On the US front, the Producer Price Index (PPI) for February rose by 10%, matching market expectations and staying at levels not seen since 1981. The data further cemented the need for higher rates, as the Federal Reserve would unveil its monetary policy statement on Wednesday at 18:00 GMT, followed by Fed’s Chief Powell presser.

USD/JPY Price Forecast: Technical outlook

The USD/JPY depicts an upward bias, though Tuesday’s price action is forming a doji near the YTD highs, meaning that USD bulls fail to commit to higher prices as the US central bank’s first rate hike looms.

If the USD/JPY aims to move lower, the first support would be 118.00. Breach of the latter would expose the 24-year-old downslope trendline, around 117.00., which once clear would leave the January 4 high resistance/support at 116.35 as the next demand zone.

Upwards, the USD/JPY first resistance would be 118.45. A decisive break would push the pair towards 119.00, followed by the 120.00 mark.