Dollar/yen made a move on 110 but failed to break to higher ground. The pair eventually ended the busy week almost unchanged. Is this a necessary consolidation or the beginning of a downfall? The US inflation report stands out as the ultimate decision maker for the next moves of the pair as geopolitics slide to the back burner.

USD/JPY fundamental movers – Not so great NFP, not so great Fed

The Non-Farm Payrolls disappointed on both jobs, which advanced by 164K against near 200K expected, and wages, which increased by only 0.1% m/m and decelerated to 2.6%. The initial sell-off of the dollar was followed by a recovery, something that characterized earlier disappointments such as both ISM PMI figures and also the Fed decision.

As expected, Powell and co. left interest rates unchanged at 1.50% to 1.75% and are still on course to raise rates in June. However, the statement was not that hawkish. They talked about inflation as being a symmetric target, thus opening the door to tolerating higher levels of CPI rises. On the economy, they were also relatively cautious.

In Japan, it was a relatively quiet week with no substantial developments in the Korean peninsula, nor with PM Abe's troubles at home. A high level US delegation flew to China to talk trade, but so far, no progress was made and talks continue. All these stories could make a comeback.

Inflation eyed

Thursday's inflation report is key to the next moves of the US Dollar. After long months of sticking to the 1.8% level, core CPI finally jumped to 2.1% in March but is now expected to slide back below the 2% level. Any deviation from 1.9% that is expected will rock the dollar across the board. Monthly core CPI carries expectations for 0.2% once again.

Early in the week, Fed Chair Jerome Powell will speak and will also have a chance to influence markets. However, he may also refrain from talking about monetary policy in a speech that may focus on the past. Also watch out for US PPI as a warm up to CPI and last but not least, the University of Michigan's Consumer Sentiment will be of interest.