USD/JPY is taking a pause from its recent rise, but it's likely to resume the rally unless geopolitical issues such as North Korea nL3N1SN1QK and Iran nL5N1SN2EJ escalate sharply. It's slipped back toward May 2 and 10 highs at 110.05/02 amid a rise in yen haven demand and consolidation of yesterday's surge in Treasury yields, but strong U.S. industrial production nFOMGGEE1P is bolstering yields and the USD. The yen's attraction as a safe haven has also been boosted by Italian political concerns nL5N1SN3J9 and EM and high beta currency weakness due to the rising dollar and U.S. rates, providing headwinds for USD/JPY gains.
But the bigger-than-expected drop in Japanese Q1 GDP nL3N1SM38M underscores the divergence between Fed tightening and the BOJ's yield curve control.
A USD/JPY close below the 200-DMA at 110.17 and 110 would delay a likely rise to 110.85, November's low and 61.8 percent of the November-March dive from 114.73 to 104.56. But, a completion of that retracement is likely before overbought pressures trigger a bigger correction.
The just-cleared weekly kijun and last Friday's swing low at 109.15 look attractive, given backstopping daily kijun support at 108.45, medium-term technical targets by 112 and the lack of net spec JPY shorts at the IMM.