- USD/JPY is trading in a tight range near a multi-year high during the European session.
- The appearance of some selling around the USD forces the bulls in the pair to take a breather after the strong rise.
- A combination of factors continue to lend some support as the focus remains on the Fed.
The pair USD/JPY remains trapped inside a tight range during the first half of the European session on Wednesday, consolidating its recent strong gains to a multi-year high. At time of writing, the pair is trading around the 118.30-118.35 region, virtually unchanged on the day.
After the recent upward movement of more than 350 pips witnessed since early last week, bulls took a breather on Wednesday amid the appearance of some selling around the US dollar. Apart from this, extreme overbought conditions capped the USD/JPY pair just before the 2017 high. That said, a combination of factors continued to act as a tailwind for the pair and support the prospects for further near-term gains.
the hopes of a possible diplomatic solution to end the war in Ukraine, along with news that China will keep the stock market stable, triggered a new wave of risk appetite. This was evident by a positive tone around equity markets, which weighed on traditional safe-haven assets such as the Japanese yen. The pair’s bulls also took cues from elevated US Treasury yields, bolstered by optimistic expectations from the Fed.
Indeed, markets seem convinced that recent geopolitical events could do little to prevent the Fed from raising interest rates to combat high inflation. The prospects of an imminent start of the monetary policy tightening cycle by the Fed pushed the Benchmark 10-year government bond yield at highest level since June 2019. This favors the USD bulls and adds credence to the short-term bullish outlook for the USD/JPY pair.
However, investors seemed reluctant to open aggressive positions preferring to wait for the outcome of the two-day FOMC monetary policy meeting, to be announced later in the American session. Ahead of the central bank event, investors will take cues from the release of monthly US retail sales data.
USD/JPY technical levels
Source: Fx Street
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