- USD / JPY oscillates in a range during the first half of trading action on Tuesday.
- Covid-19 concerns, dovish USD demand, and softer US bond yields are helping to limit the pair’s rally.
- The Fed’s optimistic expectations should help limit any significant decline ahead of the US CPI report.
The pair USD/JPY lacks a firm directional bias and remains trapped within a narrow range below the 110.50 region during the European session on Tuesday.
A combination of factors has not helped the USD / JPY to capitalize on its recent rebound from nearly three-week lows, touched around 109.50 last Thursday, and has led to subdued and mimicked price action in a range on Tuesday. Investors follow concerned about the economic consequences of the spread of the Delta variant highly contagious from coronavirus. This, in turn, has acted as a tailwind for the safe-haven Japanese yen.
Apart of this, a softer tone around US Treasury yields it has kept the USD bulls on the defensive and has done even more to limit the rise in the USD / JPY pair. Having said that, expectations that the Fed is moving towards tightening its monetary policy stance earlier than expected they have continued to provide some support to the USD. This has been seen as a key factor that has helped limit any significant decline for the USD / JPY pair.
It is worth remembering that the minutes of the June FOMC meeting released last Wednesday revealed that Fed officials agreed on the need to be ready to act if inflation or other risks materialize. Therefore, the market will focus on the publication on Tuesday of the latest consumer inflation figures in the United States, which will be released at the beginning of the American session. The data can offer clues as to the likely timing of bond buying cuts and interest rate hikes.
This will be followed by Fed Chairman Jerome Powell’s semi-annual testimony in Congress on Wednesday and Thursday, which will be closely watched for his response to inflation figures. Powell’s remarks should influence market expectations about the Fed’s short-term monetary policy outlook, which will play a key role in driving the USD in the short term and could generate further directional momentum to the USD / JPY pair. .
Before the key event risk, investors could refrain from opening aggressive positions. This further warrants some caution for bears before positioning for any significant bearish movements.
USD / JPY technical levels
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