USD/JPY portrays market’s indecision around 20-year top past 134.00, ECB, US inflation eyed

• USD/JPY dribbles around multi-year high, mildly bid during five-day uptrend.
• Firmer yields, monetary policy divergence between Fed and BOJ underpin bullish bias.
• USD’s safe-haven demand amid inflation, growth fears also favor upside moves.

USD/JPY bulls take a breather at a two-decade high amid the market’s anxiety ahead of the key data/events. That said, the yen pair retreats from the 20-year high to 134.30 but stays mildly bid while printing the five-day uptrend during Thursday’s Asian session.

Choppy moves of the US Treasury yields and the US stock futures depict the traders’ indecision and restrict the USD/JPY upside of late. The US 10-year Treasury yields seesaw around 3.034% after rising over five basis points (bps) to 3.04% the previous day. Also, S&P 500 Futures print mild losses near 4,110 after snapping a two-day rebound on Wednesday. It’s worth noting that the Wall Street benchmarks also closed in the red the previous day.

The market’s indecision could be linked to the fears of inflation and growth, as well as hawkish expectations from the European Central Bank (ECB) policymakers and hopes of firmer inflation data from the US.

Chatters that the faster monetary policy normalization will weigh on the economic transition, mainly due to the recent covid and geopolitical woes, seem to have challenged the market sentiment. On Wednesday, White House spokeswoman Karine Jean-Pierre said they expect the inflation numbers to be released at the end of the week to be elevated. Additionally, the Organisation for Economic Co-operation and Development (OECD) cuts the global growth outlook for 2022 while World Bank (WB) President David Malpass warned that faster-than-expected tightening could recall a debt crisis similar to the one seen in the 1980s.

On the same line, is the cautious mood ahead of this week’s US Consumer Price Index (CPI) data for May, especially after the softer prints of the Fed’s preferred inflation gauge, namely the Core PCE Price Index. That said, US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, stay firmer around the one-month high of late.

Above all, hawkish expectations from the Fed and the Bank of Japan’s (BOJ) refrain from tightening appears the key cause for the USD/JPY run-up. “BOJ must continue its support for the economic activity by continuing with the current monetary easing,” BOJ Governor Haruhiko Kuroda said on Wednesday.

Looking forward, today’s monetary policy decision from the European Central Bank (ECB) will be important for the USD/JPY pair, due to its direct impact on the US dollar and the market sentiment. Following that, Friday’s inflation data from China and the US will be crucial to watch for fresh impulse.

Also read: ECB Preview: Buy the July rumor, sell the fact and three other scenarios for EUR/USD

Technical analysis

Overbought RSI joins immediate resistance line near 134.60 to test USD/JPY bulls. However, sellers are less likely to take entry until the quote stays beyond May’s high near 131.35.