USD/JPY in search of a firm direction, stuck in a range below mid-108.00s

11 Jan 2019

   •  Dovish Fed expectations kept the USD bulls on the defensive.
   •  US-China trade optimism/risk-on mood helped limit downside.
   •  Today’s key focus will be on the US consumer inflation figures.

The USD/JPY pair struggled to build on the previous session's modest uptick and was seen oscillating in a narrow trading band, just below mid-108.00s.

A combination of diverging forces failed to provide any meaningful impetus and led to a subdued/range-bound price action through the Asian session on the last trading day of the week. 

The US Dollar continues to be weighed down by the growing market conviction that the US central bank might slow the pace, or perhaps even pause the rate hike cycle in 2019, reinforced by the Fed Chair Jerome Powell's comments on Thursday.

In an interview at the Economic Club of Washington, Powell echoed other Fed officials’ comments and said inflation was low, and under control, and that the central bank could afford to be patient and flexible with its monetary policy going forward. 

The downside, however, remained cushioned following the US Treasury Secretary Steven Mnuchin's optimism comments on Thursday, saying that China's Vice Premier Liu may visit Washington this month for higher-level trade negotiations, which triggered a fresh wave of risk-on trade and undermine the Japanese Yen's safe-haven demand. 

Moving ahead, today's US economic docket, highlighting the release of the latest US consumer inflation figures, will influence the USD price dynamics and produce some meaningful trading opportunities later during the early North-American session.

Technical levels to watch

Any meaningful up-move is likely to confront immediate resistance near the 108.70 region, above which the pair is likely to aim towards reclaiming the 109.00 round figure mark. On the flip side, the 108.00 handle might continue to protect the immediate downside, which if broken might accelerate the fall further towards the 107.60-50 region.

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