USD/JPY trims early recovery gains, back below mid-109.00s

   •  Easing geopolitical tensions/softer Tokyo CPI helps stage a goodish rebound.
   •  Reviving USD demand/US bond yields provides an additional boost. 
   •  Cautious tone underpins JPY’s safe-haven demand and seemed to cap gains.

The USD/JPY pair trimmed some of its early recovery gains and has now retreated back below mid-109.00s.

The pair stalled its corrective slide from over 4-month tops set on Monday, levels beyond the 111.00 handle, and staged a goodish intraday rebound from 2-1/2 week lows touched in the previous session. 

The pair on Thursday remained under some intense selling pressure and dropped to sub-109.00 level amid resurfacing geopolitical tensions after the US President Donald Trump called off a planned summit with North Korea.

Investors' fears were calmed after N. Korean Vice Foreign Minister Kim Kye Gwan said that the isolated nation was still open to resolving issues with the US and prompted some short-covering bounce. 

   •  North Korea willing to meet with the U.S. at any time

This coupled with some renewed US Dollar buying interest, supported by an uptick in the US Treasury bond yields, provided an additional boost and lifted the pair to an intraday high level of 109.74. 

The Japanese Yen was further weighed down by softer than expected Tokyo Core CPI print, coming in to show an increase of 0.5% y/y in May as compared to 0.6% rise recorded in the previous month.

The recovery move, however, lacked strong follow-through traction, with the prevalent cautious sentiment around equity markets still underpinning the Japanese Yen's safe-haven appeal and keeping a lid on any strong gains for the major. 

Technical outlook

Omkar Godbole, Analyst and Editor at FXStreet writes, "the pair looks set to test immediate support at 108.81 - 38.2% Fib R of 104.63-111.40 and could possibly drop further to 108.64. A daily close below 108.64 would confirm a bullish-to-bearish trend change."

"On the higher side, only a daily close above the 200-day MA of 110.18 would abort the bearish view," he further added.