• USD/JPY drops below the 111 handle Tokyo's open, looking for another test of the 55-DMA at 110.72.
• Big IMM net spec long position is a risk on a break of the 55-DMA.
• US CPI is going to be key in the US session, but any dollar weakness may only be temporary on central bank divergence in favour of the dollar. 

USD/JPY is sinking in the Tokyo open and has broken back below the 11 handle to mark a low of 110.88 so far. USD/JPY was attempting a bullish correction overnight but the yen is being bought back as the long EM and commodity-FX trade that is funded by the yen are covered. 

Greenback mostly higher to fresh 2018 closing high

The greenback was mostly higher on Thursday in the European and US markets, a move sparked by yesterday's uber-dovish RBNZ and geopolitical tensions between the Trump administration, Turkey and Russia. The DXY climbed -0.43% to 95.6210 from the depths of the 95 handle and made a fresh 2018 high close - the pull back to below 95.20 this week caught out the less committed bulls. The US 10yr treasury yields dropped from 2.96% to 2.93% and the 2yr yields slipped down from 2.67% to 2.65% while the Fed fund futures yields slid a touch, now pricing around 40bp of tightening by close of play this year.  Another slight plus for the yen comes with Japan Q2 preliminary GDP 0.5% q/q vs.the expected +0.3% - something that underpins the opinion that the BoJ does not need to be so lose. 

Key notes:

• US: Headline CPI to hold steady at 2.9% y/y in July - TD Securities
• Atlanta Fed: GDPNow estimate for real GDP growth in Q3 ticks down to 4.3%
• Fed's Evans: One or two more rate increases 'reasonable' by end of year.
• Telecom lifts Nasdaq, Dow and S&P close with modest losses

USD/JPY levels

Valeria Bednarik, chief analyst at FXStreet notes that the 4 hours chart shows that the 100 SMA continues heading south above the current level and above the 200 SMA, indicating an increasing downward potential without confirming it:

"Technical indicators in the mentioned chart have recovered from their daily lows, but are unable to define a direction, hovering right below their midlines. US inflation could be a make it or break it for bears, who can't seem to be able to fully take over the pair."