USD/JPY falls near 138.00, new daily low amid sustained dollar selling

• USD/JPY is back under selling pressure on Tuesday amid widespread US dollar weakness.
• Rising expectations for a less aggressive rate hike by the Fed continue to weigh on the dollar.
• A positive risk tone could weigh on the safe-haven JPY and help limit the pair’s decline.

The pair USD/JPY fails to capitalize on the previous day’s recovery, from the 137.50 zone in a three-month low, and finds new selling on Tuesday. Intraday sales rebound at the start of the European session and drag the pair towards the 138.00 level in the last hour.

The previous day’s dollar bounce from the 200-day SMA fades fairly quickly amid the Expectations that the Fed will slow the pace of its tightening. Indeed, markets are now expecting the US central bank to carry out a relatively minor rate hike of 50 basis points in December, which has led to the recent sharp fall in US bond yields. US Treasury. This, in turn, continues to weigh on the dollar and is seen as a key factor putting downward pressure on the USD/JPY pair.

Secondly, Japanese yen gets support from speculation that the Bank of Japan (BoJ) will exit its ultra-easy policy. Indeed, a Reuters poll indicated on Tuesday that more than 90% of economists expect the BoJ’s next policy move to be to reverse its massive monetary easing. The change, however, it is not anticipated before the second half of 2023. This, coupled with a positive risk tone, could weigh on the safe-haven Japanese yen and support the USD/JPY pair.

Global risk sentiment is fueled by indications that Chinese authorities intend to ease COVID-19 restrictions, despite the increase in cases across the country. This manifests itself in a modest rally in the stock markets, which tends to steer money flows away from traditional safe-haven currencies such as the JPY. Therefore, it is prudent to wait for strong follow-up selling below the previous day’s low around the 137.50 area before positioning for further USD/JPY declines.

Market participants are now awaiting the release of the US Consumer Confidence Index, which will be released later in the American session. This, along with US bond yields, will influence dollar price dynamics and give USD/JPY some momentum. Investors will also look to market risk sentiment to take advantage of some short-term opportunities. However, the focus will be on Fed Chairman Jerome Powell’s speech on Wednesday and the NFP report on Friday.

USD/JPY technical levels