USD/JPY struggles for direction, consolidates in a range below mid-110.00s

• USD/JPY found some support near 100-hour SMA and stalled the post-US CPI retracement slide.
• Sliding US bond yields kept the USD bulls on the defensive and acted as a headwind for the pair.
• The prevalent cautious mood benefitted the safe-haven JPY and further collaborated to cap gains.

The USD/JPY pair lacked any firm directional bias on Thursday and remained confined in a narrow trading band, just below mid-110.00s heading into the European session.

The pair found some support near 100-day SMA, around the 110.30 region and for now, seems to have stalled the previous day's post-US CPI retracement slide from over one-month tops. That said, a combination of factors held bulls from placing fresh bets and capped any meaningful upside for the USD/JPY pair.

Signs of moderating inflationary pressure in the US eased fears about an early withdrawal of the stimulus by the Fed. This was reinforced by some follow-through pullback in the US Treasury bond yields. This, in turn, kept the US dollar bulls on the defensive and acted as a headwind for the USD/JPY pair.

Meanwhile, worries about the economic fallout from the fast-spreading Delta variant of the coronavirus continued weighing on investors' sentiment. This was evident from a softer tone around the equity markets, which benefitted the safe-haven Japanese yen and was seen as another factor that kept a lid on the USD/JPY pair.

However, the fact that Fed officials have started to guide the market towards early tapering and higher interest rates as soon as 2022 helped limit the downside for the USD/JPY pair. Kansas City Fed President Esther George said on Wednesday that the time had come to end the central bank’s bond-buying program.

Adding to this, Dallas Fed President Rob Kaplan said that he will press his colleagues to announce a plan to taper bond purchases at the next meeting in late September. This comes on the back of hawkish comments by Atlanta Fed President Raphael Bostic and Boston Fed President Eric Rosengren, warranting some caution for bearish traders.

Hence, it will be prudent to wait for some strong follow-through selling before confirming that the USD/JPY pair has topped out in the near term and positioning for any further depreciating move. Traders now look forward to the US economic data – Producer Price Index and weekly Jobless Claims – for a fresh impetus.

Technical levels to watch