USD/JPY falls back to near 138.00 as US Dollar remains uncertain ahead of Retail Sales

• USD/JPY has retreated to near 138.00 amid uncertainty in the US Dollar Index ahead of retail figures.
• Investors are expecting that the Fed will find a peak in interest rates more quickly than other global central banks.
• BoJ Ueda is expected to maintain a dovish policy stance to maintain inflation steadily around 2%.

The USD/JPY pair has dropped back to near the crucial support of 138.00 in the European session. The asset is struggling to find any direction as the US Dollar Index (DXY) is showing uncertain moves. Sheer volatility in the US Dollar Index would recede and the asset might get a direction after the release of the United States Retail Sales data.

S&P500 futures have generated nominal losses in London, portraying a quiet market mood. US equities could face some heat as firms are reporting quarterly results, therefore, a stock-specific action will be observed.

The US Dollar Index (DXY) is demonstrating signs of a volatility squeeze after finding buying interest post-testing its annual low of around 99.60. Meanwhile, the 10-year US Treasury yields have dropped to near 3.76%.

Investors are keenly awaiting the release of the US Retail Sales data for further guidance. Analysts at RBC Economics expect that US Retail Sales will likely tick up 0.6% in June, thanks to a boost in auto sales during that month. We expect ex-auto sales were little changed at +0.1% on a monthly basis, supported by a price-related increase in gasoline station sales.

Regarding interest rate guidance, investors are expecting that the Federal Reserve (Fed) will find a peak in interest rates more quickly than other global central banks. As per the CME Fedwatch tool, investors are more confident about only one interest rate hike from the Fed by year-end.

On the Japanese Yen front, investors have shifted their focus toward the interest rate decision by the Bank of Japan (BoJ), which will be announced next week. BoJ Governor Kazuo Ueda is expected to maintain a dovish policy stance to maintain inflation steadily around 2%.