- USD/JPY comes under renewed selling pressure on Tuesday amid broad-based USD weakness.
- Rising bets for less aggressive rate hikes by the Fed continue to weigh heavily on the greenback.
- A positive risk tone could undermine the safe-haven JPY and help limit the downside for the pair.
The USD/JPY pair fails to capitalize on the previous day’s recovery from the 137.50 area, or a three-month low and meets with a fresh supply on Tuesday. The intraday selling picks up pace during the early European session and drags spot prices back closer to the 138.00 mark in the last hour.
The overnight US Dollar bounce from a technically significant 200-day Simple Moving Average (SMA) fades rather quickly amid expectations that the Fed will slow the pace of its policy tightening. In fact, the markets now expect the US central bank to deliver a relatively smaller 50 bps rate hike in December, which led to the recent sharp decline in the US Treasury bond yields. This, in turn, continues to weigh on the USD and is seen as a key factor exerting downward pressure on the USD/JPY pair.
The Japanese Yen, on the other hand, draws support from speculations that the Bank of Japan (BoJ) will exit its ultra-lose policy stance. In fact, a Reuters poll indicated on Tuesday that more than 90% of economists expect that BoJ’s next policy move will be to unwind its massive monetary easing. The change, however, is not anticipated before the latter half of 2023. This, along with a positive risk tone, could undermine the safe-haven JPY and lend support to the USD/JPY pair.
The global risk sentiment gets a boost amid hints that Chinese authorities intend to loosen COVID-19 restrictions, despite a nationwide surge in cases. This is evident from a modest uptick in the equity markets, which tends to drive flows away from traditional safe-haven currencies, including the JPY. This makes it prudent to wait for strong follow-through selling below the overnight swing low, around the 137.50 region, before positioning for any further losses for the USD/JPY pair.
Market participants now look forward to the release of the Conference Board’s US Consumer Confidence Index, due later during the early North American session. This, along with the US bond yields, will influence the USD price dynamics and provide some impetus to the USD/JPY pair. Traders will also take cues from the broader market risk sentiment to grab short-term opportunities. The focus, however, will be on Fed Chair Jerome Powell’s speech on Wednesday and the NFP report on Friday.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.