- USD / JPY gains positive traction on Monday and recovers losses from the previous day.
- A positive risk tone weighs on the safe haven JPY and offers some support for the pair.
- Expectations of a Fed rate hike and high US bond yields benefit the USD and support the pair.
The pair USD / JPY remains stable above the 114.00 level during the first part of the European session, although it lacks any follow-up buy.
The pair regained positive traction on the first day of a new week and built on Friday’s rebound from a week-and-a-half low, around the 113.60-55 region. A generally positive tone around the stock markets weighed on the safe-haven Japanese yen and turned out to be a key factor acting as a tailwind for the USD / JPY pair.
The bulls also took the cues from the high yields on US Treasuries, bolstered by expectations of an early tightening of monetary policy by the Fed. Indeed, Fed fund futures indicate the possibility of an eventual Fed rate hike for July 2022 and a high probability of another hike for November amid concerns about stubbornly high inflationary pressures.
The speculation was further fueled by comments from Fed Governor Christopher Waller, who said that the US central bank should accelerate the pace of adjustment to give more room for maneuver to raise interest rates. This, in turn, helped the US dollar hold firm near a multi-month high and extended additional support to the USD / JPY pair.
Having said that, Growing nervousness over the impact of growing COVID-19 infections in Europe prevented investors from opening aggressive bullish positions and limited the rise of the USD / JPY pair. This, in turn, warrants some caution before positioning for a further short-term bullish move.
Looking ahead, investors this week will take cues from Wednesday’s release of the preliminary US GDP figure for the third quarter and the underlying PCE price index. This will be followed by the minutes of the last FOMC meeting, which will influence the USD price dynamics. Apart from this, the developments around the coronavirus saga should provide a new directional boost to the USD / JPY pair.
USD / JPY technical levels
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