- USD/JPY is struggling to capitalize on its positive intraday move towards the 143.50 area.
- The current drop in the dollar to a new monthly low acts as a headwind for the pair.
- A combination of factors could weigh on the safe haven JPY and offer support to the pair.
- Also, investors could stay on the sidelines ahead of Tuesday’s US CPI report.
The pair USD/JPY retraces about 90 pips from the daily high at 143.50 and drops back below the 143.00 level at the start of the European session on Monday.
The US dollar extends its recent sharp corrective pullback from two-decade highs hit last week and remains under heavy selling pressure on Monday. This, in turn, acts as a headwind for the USD/JPY pair. In addition, the speculation that the authorities could intervene soon to stop the free fall of the Japanese yen they also help to limit the rise in torque. In fact, the deputy secretary of the Japanese cabinet, Seiji Kihara, has urged the government to take the necessary measures to counteract the excessive fall in the yen.
That said, a combination of factors should help limit the USD/JPY slide and support the prospects for a resumption of a strong month-long upward trajectory. A generally positive tone around the stock markets, coupled with the wide divergence in the policy stance taken by the Bank of Japan and the Federal Reserve, could weigh on the safe-haven JPY. It is worth mentioning that the Bank of Japan has lagged behind other major central banks in the process of normalizing monetary policy and remains committed to continuing its monetary easing. Instead, the Fed is expected to tighten policy at a faster pace.
Markets, however, already seem to have priced in a 75 basis point rate hike at the next FOMC meeting on September 20-21. Therefore, dollar bulls could wait for important US consumer inflation numbers on Tuesday before opening new positions. This, in turn, will boost demand for the dollar and provide a further directional boost to the USD/JPY pair. Meanwhile, traders may prefer to stay on the sidelines in the absence of market-relevant economic releases on Monday.
USD/JPY technical levels
Source: Fx Street
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