US DOLLAR OUTLOOK: USD/JPY PULLED HIGHER WITH YIELDS AS MARKETS AWAIT PCE INFLATION DATA
- US Dollar traded mixed and left the DXY Index little changed on Thursday
- USD/JPY surged 70-pips as Treasury yields ticked higher ahead of PCE data
- The Yen weakened broadly and likely exacerbated recent USD/JPY strength
The US Dollar finished Thursday’s trading session practically flat gauging by the Index. US Dollar price action was a mixed bag across the board of major currency pairs with strength against the Yen largely offsetting weakness versus the Sterling. Treasury yields climbed for the second day in a row with the ten-year extending its rebound off Wednesday’s swing low to 5.4-basis points. Bond yields stayed perky even after strong demand was seen for today’s $62-billion seven-year Treasury auction.
This likely helped propel USD/JPY to a fresh monthly high, though the bid arguably looked exacerbated by a broadly softer Yen. Perhaps news that the MSCI Global Standard Index is removing 29 Japanese listings weighed negatively on the Yen and positively on JPY-crosses. That said, the latest advance by USD/JPY seems to have invalidated its bearish descending trendline as bulls wrestle back control.
USD/JPY PRICE CHART: DAILY TIME FRAME (25 DEC 2020 TO 27 MAY 2021)
USD/JPY price action is trading comfortably above its 50-day simple moving average as well. The latest influx of USD/JPY buying pressure has also coincided with a bullish MACD crossover and expansion of its Bollinger Band. The Dollar-Yen could be headed toward year-to-date highs now after eclipsing technical resistance posed by the 13 May swing high. Nevertheless, the direction of USD/JPY likely still hinges on Treasury yield volatility.
Looking ahead to Friday’s trading session on the Economic Calendar, we see that high-impact event risk is posed by the scheduled release of monthly PCE inflation data. This is the Federal Reserve’s preferred gauge of inflation and stands to have an impact on markets. Judging by overnight US Dollar implied volatility readings, however, USD price action could be somewhat tame. After all, traders have already digested red-hot CPI data released earlier in the month while FOMC officials continue to condition markets with their ‘transitory’ narrative.