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USD/JPY retraces losses on improved risk sentiment, rises above mid-112s

The USD/JPY pair lost around 80 pips in a quick manner after today's macro data from the U.S. failed to match the market expectations. After dropping to its lowest level since July 3 at 112.30, the pair started to erase its gains and was trading at 112.70 (-0.53%) at the time of writing.


The greenback encountered a fresh selling wave on the dismal inflation readings. Although the core CPI, on a monthly basis, in June matched the previous month's reading at 0.1%, it missed the market consensus of 0.2%. Moreover, the CPI on a yearly basis eased to 1.6% from 1.9%. Other data from the U.S. showed that the retail sales contracted by 0.2% for the same month while the preliminary reading of University of Michigan Consumer Sentiment Index retreated to 93.1 in July from 95.1 in June.


  • US: Confidence in future economic prospects continued to slide in early July - UoM

However, following the initial reaction, the US Dollar Index seems to have formed a strong base around the 95 mark as the better-than-expected industrial production data provided support for the currency. At the moment, the index is consolidating its daily losses a tad above the 95 mark, still losing 0.5% on the day.


  • U.S. economy in a snapshot - New York Fed

In the meantime, on the back of strong earning reports from heavy-weight financial firms, major equity indexes in the U.S. are looking to end the week on a positive note, not allowing safe havens to gather further strength and helping the USD/JPY pair make a modest recovery.


  • US Stocks: Financials announce strong Q2 earnings

Technical outlook


With this latest fall, the pair broke below the significant 200-DMA support. A weekly close above that level could open the door for further losses. 112.30 (daily low) could be seen as the initial support ahead of 112 (psychological level) and 111.35 (100-DMA). On the upside, 112.80 (200-DMA) could be seen as the first technical resistance followed by 113.60 (daily high) and 114.50 (Jul. 11 high).

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