- A softer risk tone benefits the JPY as a safe haven and puts some pressure on the pair.
- The continued decline in US bond yields contributes to the intraday selling bias in the pair.
- A modest pickup in USD demand should help limit deeper losses, at least for now.
The pair USD/JPY moves slightly lower at the start of the European session on Monday, staying near the lower end of its intraday trading range around the 109.50 level.
After having missed near the key psychological level of 110.00 on Friday, the pair has found new selling on the first day of a new week and has come under pressure from a combination of factors. A softer tone in equity markets has benefited the safe-haven Japanese yen and it has been seen as a key factor putting pressure on the USD / JPY pair.
Global risk sentiment has been affected by an Israeli study published on Saturday, which indicates that South African variant of COVID-19 may beat Pfizer’s vaccine. Also, the news that one of Iran’s nuclear facilities was hit by a terrorist act it has further weighed on investors’ appetite for riskier assets and boosted monetary flows towards traditional safe haven currencies such as the JPY.
The bears have taken cues from the current drop in U.S. Treasury yields, though a modest pickup in demand for the US dollar could help limit the decline in the USD / JPY pair. The USD has found some support after Fed Chairman Jerome Powell said the US economy is ready for a turnaround and higher growth should create more jobs.
During an interview with 60 Minutes, Powell added that the Fed wants inflation moderately above 2% for some time, but you don’t want it to materially rise above 2%. It is worth mentioning that the optimistic economic outlook for the US, along with US President Joe Biden’s infrastructure spending plan, has fueled the speculation about a rebound in inflation in the US.
This, in turn, has raised doubts that the Fed will keep interest rates ultra-low for a longer period. Therefore, the focus now shifts to the release of the latest US consumer inflation figures on Tuesday. The data will influence expectations about the Fed’s next monetary policy move and will play a key role in determining the next directional move for the USD / JPY pair.
Meanwhile, broader market risk sentiment, US bond yields and USD price dynamics could generate some near-term momentum amid the absence of relevant economic releases on Monday.
USD / JPY technical levels
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