USD struggles to gain momentum ahead of CPI

FX:USDJPY   U.S. Dollar / Japanese Yen
Following the yesterdays’ selloff, the US dollar             is trying to stage a comeback on Thursday, after Chinese government officials played down the reports that China is going to reduce its US Treasury holdings. However, the momentum looks limited as the bulls are taking a wait-and-see approach ahead of tomorrow’s key US economic data.
The market will analyze CPI             figures with respect to the prospect of another Fed rate hike, though the regulator prefers to monitor the PCE index due at the end of January. The December inflation is expected to ease to 0.2% m/m following a jump by 0.4% in the previous month. If so, it will be another blow for the greenback, while dismal retail sales figures may add to the downward pressure.
In the longer term, the key risk for the USD in 2018 is Trump’s domestic and foreign policy. The latest events signal a background for a trade war between China and the United States, which may pose a threat to the global economy.
Increase of tensions on this front will further undermine USDJPY’s positions. The pair slipped to the 111.25 end of November lows and is now trying to stage a recovery which is capped by the 112.00 hurdle. Failure to regain this level will introduce scope for 111.00 area and lower.
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