- USD / JPY consolidates its recent strong gains to the highest level since February 2020.
- A subdued demand for the USD is the only factor limiting the pair’s gains amid overbought conditions.
- The Fed’s optimistic expectations and risk appetite support the prospects for a further upward move in the pair.
The pair USD/JPY has been stable near multi-month highs at the start of the European session on Thursday, with the bulls looking to take advantage of momentum above the 112.00 level.
The pair has been swinging within a range during the first half of trading action on Thursday and has consolidated its recent strong gains recorded in the last six trading sessions. The US dollar has fallen a bit from the highest level since November 2020 touched on the previous day, which, in turn, has been seen as a key factor that has acted as a headwind for the USD / PY pair. Nevertheless, risk appetite in the markets has weighed on demand for the safe-haven Japanese yen and provided some support for the pair.
Furthermore, it is likely that a Modest USD pullback remains limited amid expectations that the Fed will begin reversing its massive pandemic-era stimulus as early as November. Markets also appear to have begun pricing in the possibility of a Fed rate hike in 2022. This, to a greater extent, has helped offset concerns about the looming US debt ceiling and continued to prop up the dollar. U.S. It is worth mentioning that the federal funds will expire on Thursday and the borrowing authority around October 18.
However, the fundamental backdrop appears to tilt firmly in favor of the bulls and supports prospects for an extension of the recent strong upward move. Having said that, overbought conditions on short-term charts could turn out to be the only factor that could limit any further gains for the USD / JPY pair. Market participants are now looking forward to the US economic calendar, highlighting the release of the final GDP figure and initial weekly jobless claims for a new trade boost.
Apart from this, the testimony of Fed Chairman Jerome Powell before the Financial Service Committee and US bond yields will influence USD price dynamics. Investors could continue to take cues from the broader market risk sentiment for some short-term opportunities around USD / JPY.
USD / JPY technical levels
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