USD/JPY skids beneath 128.00 as yields retreat ahead of US data, Fed’s Powell

• USD/JPY remains sidelined, mildly offered, as market consolidates recent moves.
• Hawkish Fedspeak, cautious sentiment ahead of the key data/events probes the previous risk-on mood.
• Quad Summit, S&P Global PMIs for May and Fed’s Powell will provide fresh impetus.

USD/JPY renews intraday low around 127.70 as market’s in Tokyo opens for Tuesday’s trading. In doing so, the yen pair portrays the market’s anxiety before the crucial catalysts. Also challenging the USD/JPY moves are the latest comments from the Fed policymakers.

That said, the Quad Summit in Tokyo and the preliminary readings of the US S&P Global Manufacturing and Services PMIs for May, as well as a speech from Fed Chairman Jerome Powell, are today’s key catalysts that make traders nervous of late.

On the other hand, comments from San Francisco Federal Reserve Bank President Mary Daly and Kansas City Federal Reserve Bank President Esther George seem to have triggered the latest risk-off mood. “I think that we can weather this storm, get the interest rate up...price stability restored and still leave Americans with jobs a plentiful and with growth expanding as we expect it to," said Fed’s Daly during an interview with Fox News on Monday. On the same line, Fed’s George expects the US central bank to lift its target interest rate to about 2% by August.

It should be noted that the risk-on mood joined a lack of bullish bias to weigh on the USD/JPY prices the previous day. That said, the firmer sentiment drowned the US Dollar Index to a fresh two-week low but mixed concerns in Japan, due to the Bank of Japan’s favor for (BOJ) easy money policies and risks emanating from China and Russia, seemed to have restricted the USD/JPY losses.

US Dollar Index (DXY) extended the first weekly loss in seven as mixed covid signals from China, mostly positive, join the repeated Fedspeak around a 50 bps rate-hike, contrary to the recently hawkish comments from the ECB policymakers. Also weighing on the greenback were the headlines from Japan where US President Joe Biden mentioned that he is considering reducing tariffs on China.

Against this backdrop, S&P 500 Futures drops 0.60% intraday whereas the US 10-year Treasury yields fell two basis points (bps) to pare the recent gains and challenge the USD/JPY moves.

To sum up, USD/JPY portrays the market’s indecision and hence cautious trading ahead of the aforementioned key data/events becomes prudent for traders.

Technical analysis

A convergence of the two-week-old descending trend line and the 10-DMA, around 128.60 by the press time, restricts the short-term USD/JPY upside. However, a steady RSI and monthly horizontal support near the 127.00 threshold, challenge the pair sellers.