What’s next? – USDJPY 16.05.18

The dollar was trading 0.04 percent higher vs the Japanese yen at 110.29 as of 05:35 GMT on Wednesday, with safe-haven demand slowly recovering amid a strong dollar.

The US dollar index, which measures the greenback’s strength against a basket of six major competitors, was up 0.06 percent at 93.15 by the time of this writing.

Overnight the dollar hit 93.32, its highest level this year in reaction to easing concerns over a potential trade war between the United States and China.

Investors closely monitored the 10-year Treasury yield, which was about 3.089% this morning, remaining close to a 7-year peak. The increase of yields widens the differential between Federal Reserve interest rates and the ones of other central banks, which is good for the dollar.

On Tuesday, Federal Reserve Bank of Dallas President Robert Kaplan warned about the risks of speeding up the pace of interest-rate hikes by the Federal Reserve.

The “yield curve is one of the considerations on my mind, which is why I’m not jumping away from three as a base case,” Kaplan said. “I don’t want to knowingly invert the yield curve, but I think it’s too soon to say how much operating flexibility we are going to have."

The Federal Reserve is looking at least three interest rate hikes for 2018. However, recent data from the labor market and inflation supported the possibility of a fourth increase this year.

Fed funds tracked by CME Group’s FedWatch tool show that market participants are currently weighing in a 95 percent probability of a rate hike in the June monetary policy meeting.

On the data front, retail sales rose 0.3 percent in April, falling short from an estimated 0.4 percent. Business inventories for March were unchanged and the New York Empire State manufacturing index for May surpassed its forecast with a 20.10 reading.

From a technical perspective, the US dollar has finally broken the key resistance at the 110 mark. If the pair is able to consolidate above this level, we could expect an upward extension. In this regard, the 112.50 level could offer moderate resistance in the medium term.

FortFS