USD/JPY meeting strong resistance, DXY back below 100 level

USD/JPY is down on the day so far, dropping in a range of 107.21 and 107.69, -0.34% at the time of writing. The pair has stalled in the May 6th rally from below 106 the figure as the US dollar gives back some ground mid-week. 

USD is -0.29% in the DXY and testing territories back below the 100 level. The US Consumer Price Index has dropped in April in its biggest monthly decline since the 2008-09 recession. Markets now expect that the headline CPI rate will fall below zero YoY in Q2 and Q3 which will mark the worst period of disinflation since the 2008-09 recession. This is significant as lower for longer inflation, into 2021, will keep the Fed in stimulus mode for an extended period and the US dollar under pressure.

The intensification of tensions between the US and China

Meanwhile, JPY net long positions have been falling from their recent highs, but both the USD and JPY are likely to be sensitive to any intensification of tensions between the US and China. The trade wars are heating up again. On Monday, the Global Times tabloid, a paper published by the People's Daily, the official newspaper of China's ruling Communist Party which views are believed at times to reflect those of its leaders, reported troublesome news.

Unidentified advisers close to the talks have apparently suggested that Chinese officials will revive the possibility of invalidating the trade pact and negotiate a new one to tilt the scales more to the Chinese side. This is a space the markets are watching. 

In response to questions asked whether the US would renegotiate a deal, US President Donald Trump said, "No, not at all. Not even a little bit. I'm not interested. We signed a deal. I had heard that too, they'd like to reopen the trade talk, to make it a better deal for them."

USD/JPY levels