USD/JPY finds support at 110.50 and rebounds, but still looks under pressure

• US Dollar mixed after weak US data. 
• Yen gains momentum amid risk aversion and lower yields. 

Weaker-than-expected US data triggered a decline of the US dollar across the board and a rally in bonds. The USD/JPY tumbled to 110.50, erasing yesterday’s gains. The rebound from the lows lost strength around 110.80 and the pair pulled back, on the back of renewed risk aversion, following reports on US-China trade talks. 

A sharp decline in retail sales in December, a negative reading for the Producer Price Index Also the 4-week moving average of initial jobless claims hit the highest since January, pushed the USD/JPY to the downside. Banks and analysts revised lower Q4 GDP estimates after today’s data. 

Despite falling against the yen, the US dollar rose against commodity currencies and the pound. The recovery of USD/JPY eased following a report from Bloomberg suggesting that the US and China have made little progress during trade talks in Beijing. It is trading at 110.60 as US yields move off lows. The 10-year bottomed at 2.645% and it rose to 2.664%. 

In the UK, the Parliament holds a debate on Brexit. UK PM May spokeswoman said the government has no intention of withdrawing motions ahead of votes. The uncertainty around the results affected the pound and could also weigh on risk appetite, boosting the demand for the yen.