USD / JPY cuts intraday gains, clings near session lows around 109.40-35 zone

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  • USD / JPY was unable to capitalize on its modest positive intraday move to the 109.70 zone.
  • A modest USD weakness was seen as a key factor that acted as a headwind for the pair.
  • Rising US bond yields, expectations of an aggressive Fed, and risk appetite should help limit losses.

The pair USD/JPY It struggled to preserve its modest intraday gains and fell to the lower end of the daily trading range, around the 109.40-35 region during the mid-European session.

Global equity markets recovered solidly after the previous day’s sell-off, undermining demand for the safe-haven Japanese yen. This, in turn, helped the USD / JPY pair gain some positive traction during the early part of the trading action on Tuesday. However, a combination of factors limited any further gains for the pair, rather sparking some new selling near the 109.70 region.

Investors remain concerned about contagion from the Evergrande debt crisis in China. This, coupled with the uncertainty over the approval of US President Joe Biden’s economic agenda and the lingering problems of COVID-19, kept optimism at bay. Added to this, a modest weakness in the US dollar put even more pressure on the USD / JPY pair, although the decline seems muffled, at least for the moment.

Investors appear to be convinced that the Fed would start rolling back its massive pandemic-era stimulus sooner rather than later. Aside from this, the risk appetite boost in the markets triggered a new boost in U.S. Treasury yields This, in turn, should act as a tailwind for the dollar and help limit any deeper losses ahead of the critical two-day FOMC meeting that begins Tuesday.

The Fed is scheduled to announce its decision during the US session on Wednesday and is expected to leave its monetary policy settings unchanged. Therefore, the market’s focus would be on clues as to the likely timing of the Fed’s phase-down plan. This will play a key role in influencing short-term USD price dynamics and provide new directional momentum. to the USD / JPY pair.

It would be prudent to wait for a strong follow-up sell before positioning yourself for any significant drops ahead of the key central bank risk event.

Technical levels

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