USD/JPY struggles at around 130.00 and slips towards 129.00s on falling US yields

• The greenback remains trading on the backfoot vs. the Japanese yen amid falling US Treasury yields.
• Risk-aversion, a headwind for the USD/JPY, as US equities finished with losses in the New York session.
• USD/JPY Price Forecast: Remains upward biased, though a dip towards 126.94 first and then 125.10 is on the cards.

The USD/JPY is losing some ground as the Asian Pacific session begins, down some 0.10%, as US Treasury yields could not recover from earlier losses, led by the 10-year benchmark note, down some three basis points, amid a risk-off market mood. At the time of writing, the USD/JPY is trading at  129.02.

US equities fell at the close of NY, and US Treasury yields rebound

Late in the New York session, market sentiment fluctuated, finishing downbeat, as market participants assessed the Federal Reserve monetary policy pace and China’s economic slowdown, courtesy of restrictions re-imposed on the last Covid-19 outbreak. US Treasury yields pare some losses in the long-end of the curve, but in the short and mid-end, dropped.

In the meantime, the US Dollar Index, a gauge of the greenback’s value against a basket of peers, suffered decent losses of 0.25% for the second straight session and sat at 104.206, retreating from multi-month highs around 105.00.

Meanwhile, Fed speaking dominated the headlines in the US docket. John Williams, NY Fed President, said that the US central bank is focused on one issue, named inflation, and added that it is running far too high and stubbornly persistent. He said that 50-bps rate hikes make sense at upcoming meetings and added to the list of central bankers, expressing worries about China’s economic deceleration.

Elsewhere, China’s Industrial Production and Retail Sales contracted, meaning that the zero-tolerance Covid-19 restrictions are already showing on the economic indicators, despite efforts made by the People’s Bank of China (PBoC), which is stimulating the economy but failing to provide the results foreseen by Beijing.

Data-wise, the US economic docket featured the New York Fed Empire State Index, which disappointed expectations of +17.0, and came at -11.6. Ahead in the week, April’s Retail Sales, Industrial Production, Building Permits, and Initial Jobless Claims would offer some fresh impetus to USD/JPY traders regarding the economic conditions of the US.

On the Japanese front, the GDP on its Preliminary reading is expected to grow by 1.1% in Q1, while annualized is foreseen at 5.4%, both readings to be released on Wednesday.

USD/JPY Price Forecast: Technical outlook

Since last Thursday, May 12, the USD/JPY broke below a one-and-a-half month-old upslope trendline, right at the 130.00 mark. As the major was printing higher highs, the Relative Strength Index was printing lower highs, usually called a negative divergence between the price action/oscillator. Nevertheless, the USD/JPY remains upward biased, but a break below 126.94 would expose the March 28 daily high-turned-support at 125.10.

The USD/JPY first support would be the 129.00 mark. Once cleared, the next support would be May 12 daily low at 127.51, followed by April’s 27 daily low at 126.94. On the flip side, and on the path of least resistance of the major, the first resistance would be 130.00, followed by the upslope trendline, passing nearby the 130.70-90 area, and then the YTD high at 131.34.