- USD/JPY staged a nice rebound from the 3-week low hit earlier this Tuesday.
- A change in risk sentiment undermined the safe haven JPY and it remained supported.
- Bulls were also inspired by the rally in US bond yields, although a weaker USD could limit gains.
The pair USD/JPY rallied to a fresh daily high during the mid-European session, and the bulls are now looking to extend the momentum beyond the 115.00 psychological level.
The pair attracted some buying on the dips near 114.50 and staged a nice rebound from the 2 1/2 week low hit on Tuesday. The intraday rally picked up on the back of a dramatic turn in global risk sentiment, which tends to undermine the safe-haven Japanese yen.
Market nervousness over the worsening Ukraine crisis subsided after a Kremlin spokesman said Russia is still open to a diplomatic solution and has an interest in it. This coupled with a strong rally in US Treasury yields inspired bullish traders and provided a boost to the USD/JPY pair.
However, optimism is likely to remain limited amid the risk of a further escalation of tensions between Russia and the West. Russia upped the ante on Monday by recognizing two breakaway regions in eastern Ukraine as separate entities and allowing troops into the area to keep the peace.
The development fueled fears about a full-blown East-West conflict. In fact, the US and its allies are expected to announce new sanctions against Russia. This should continue to lend support to the JPY and any significant upside for the USD/JPY pair amid fresh selling around the US dollar.
Therefore, it remains to be seen if the bulls can capitalize on the move or if the USD/JPY pair meets fresh supply at higher levels. However, the market’s focus will remain on the situation in Ukraine, which will influence risk-on sentiment and give the USD/JPY pair some momentum.
Market participants are now eagerly awaiting the US economic calendar, with the release of preliminary PMI numbers due later in the early American session. This coupled with US bond yields and USD price action should produce some trading opportunities around the USD/JPY pair.
Technical levels
Source: Fx Street
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