USD/JPY subdued around 136.50s on soft USD amidst falling US bond yields

• The US Dollar fails to capitalize on a risk-off mood, blamed on falling US bond yields.
• Recently released US economic data would keep the Federal Reserve tightening monetary policy.
• USD/JPY Price Analysis: Upward biased, but might consolidate around 135.00/136.00.

The USD/JPY remains pressured in the North American session, spurred by dented risk appetite produced by the last three days’ economic data from the United States (US) suggesting further tightening needs by the Federal Reserve (Fed). Nonetheless, the USD/JPY edges lower, trading at 136.61, partly due to falling US Treasury yields.

Before Wall Street opened, the US Department of Commerce (DoC) revealed that Trade Balance in the United States widened to $-78.2B compared to September’s $-74.1B, beneath estimates of $-80B. Delving into the data, the Exports rose by $256.6B below September’s data, while Imports jumped $334.8B above the previous month’s $332.6B.

Meanwhile, data revealed since last Friday portrays that the labor market in the US remains tight, while Average Hourly Earnings jimping 5.1% YoY added to inflationary pressures. Aside from employment data, the US Institute for Supply Management (ISM) revealed that the Service PMI Index rose 56.6, better than the 53.3 expected.

Elsewhere, investors’ sentiment has dampened since the beginning of the week due to their assessment of the Federal Reserve’s (Fed) reaction to data. Wednesday’s speech by the Federal Reserve Chair Jerome Powell, pivoting towards less aggressive rate hikes in the 50 bps size, spurred a rally in risk-perceived assets. However, last week’s data put Powell at a crossroads, with the Producer Price Index (PPI) to be released on Thursday, followed by the University of Michigan (UoM) Consumer Sentiment and next week’s Consumer Price Index (CPI) before December’s meeting. Any hints that inflation remains high could put an aggressive 75 bps hike back into play.

Hence, the USD/JPY failed to sustain the rally on Tuesday due to the US bond yields falling. The US 10-year Treasury yield creeps down two and a half bps, at 3.550%.

USD/JPY Price Analysis: Technical outlook

From the daily chart perspective, the USD/JPY is neutral-upward biased. Since last Friday’s breach of the 200-day Exponential Moving Average (EMA), the major recovered some ground, though it’s testing the bottom trendline of a previous upslope support trendline at around 137.40s. The USD/JPY key support levels lie at 136.00, followed by the December 2 daily high of 135.98, followed by the 200-day EMA at 135.01. On the other hand, the USD/JPY first resistance would be the psychological 137.00 mark. Break above will expose the upslope trendline drawn since August 2022 at around 137.40, followed by the December 1 daily high of 138.12.