- A combination of factors helps USD/JPY reverse Monday’s modest intraday losses.
- A positive risk tone weighs on the safe-haven JPY amid the monetary policy divergence between the Fed and the Bank of Japan.
- The weakening of the dollar fails to inspire the bulls or give the pair an additional boost.
The pair USD/JPY has attracted some buying at lower levels on the first day of a new week and now has recovered almost 60 pips from the daily low, around 134.50. The pair has broken back above the psychological level of 135.00 at the start of the European session, and is now trading near the upper end of its intraday range.
The recent decline in commodity prices contributed to reduce fears about a further rise in inflationary pressures and led to a nice rebound in global risk sentiment. This was revealed in the signs of stability in financial marketswhich weighed on the safe-haven Japanese yen and acted as a tailwind for the USD/JPY pair.
Weak demand for haven assets pushed up US Treasury yields, causing the gap between US and Japanese bond yields to widen. This along with a wide divergence in the policy stance adopted by the Bank of Japan and the Fedweighed on the JPY and offered more support to the USD/JPY pair.
Nevertheless, modest US dollar weakness prevented investors from opening aggressive bullish positions and capped USD/JPY gains, at least for now. The hope that inflation will approach its peak forced investors to reduce bets on more aggressive rate hikes by the Fedwhich in turn kept dollar bulls on the defensive.
The mixed fundamental background warrants caution before positioning for any firm short-term directions, although the bias still appears to be tilted in favor of the bulls. Market participants now await the US economic calendar, with the release of Durable Goods Orders and pending home sales later in the American session.
In addition, US bond yields will influence the price dynamics of the dollar and give a new impetus to the USD/JPY pair. Investors will follow the broader market risk sentiment to take advantage of some short-term opportunities around the pair.
USD/JPY technical levels
Source: Fx Street
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