USD/JPY fades bounce off weekly low past-130.00 with eyes on US inflation

• USD/JPY remains sidelined amid mixed concerns, anxiety ahead of the key US data.
• Fed’s Mester renewed 75 rate hike calls, yields probe the bulls.
• Headlines from China, Russia and Fedspeak can offer intermediate clues ahead of the US CPI for April.
• Expectations of easing inflation could propel USD in case of a stronger outcome.

USD/JPY fades bounces off the weekly low, steady around 130.30 heading into Wednesday’s Tokyo open. The yen pair’s latest weakness could be linked to the market’s cautious mood ahead of the key US Consumer Price Index (CPI) data, as well as mixed concerns surrounding China’s covid conditions and the Russia-Ukraine crisis.

The risk-barometer pair improved the previous day as the US dollar regained its mojo, after initially stepping back, on comments from Cleveland Fed President and FOMC member Loretta Mester who recalled the bears by saying that the Fed policymakers don't rule out a 75 basis points rate hike forever.

Also likely to have underpinned the greenback were fears of economic stagnation as rigid lockdowns in the world’s largest industrial player China and the geopolitical tensions between Moscow and Kyiv challenge the global supply chain and fuel price pressure.

Additionally, the monetary policy divergence between the Fed and the Bank of Japan (BOJ) and China’s readiness to tame the covid are some extra catalysts that allowed USD/JPY to print mild gains the previous day.

Against this backdrop, the Wall Street benchmark closed mixed after an initially positive start while the US 10-year Treasury yields also eased to 2.99% by the day’s end.

Looking forward, Fedspeak may entertain USD/JPY traders and so do the aforementioned risk catalysts but the US inflation numbers for April, expected 8.1% YoY versus 8.5% prior, will be crucial to watch. The reason is the market’s hope for softer prints and strong chatters over the Fed’s 75 basis points (bps) of rate hikes.

Also read: US CPI Preview: Hard core inflation to propel dollar to new highs, and two other scenarios

Technical analysis

A two-week-old ascending triangle formation restricts short-term USD/JPY moves between 130.00 and 131.35. Overbought RSI (14), however, signals a bumpy road for the bulls.