USD/JPY remains trapped in a range and consolidates around 136.00 ahead of Powell

• USD/JPY does not have a strong directional bias and consolidates its recent gains after hitting a multi-day high.
• Recession fears benefit the JPY as a safe haven and limit the pair’s gains amid falling US bond yields.
• Modest dollar strength acts as a tailwind as attention remains on Fed Chairman Jerome Powell’s speech.

The pair USD/JPY trades in a tight range on Wednesday and consolidates its recent gains recorded in the last three sessions. The pair has broken above the 136.00 level again at the start of the European session, with the bulls pointing to the multi-day high hit the previous day.

The US dollar built on the previous day’s strong rise and gained some traction during the first part of Wednesday. This, along with Monetary policy divergence between the Bank of Japan and the Federal Reserve acted as a tailwind for the USD/JPY pair. However, a combination of factors prevented the bulls from opening aggressive positions and prevented the pair from rising significantly.

Market sentiment remains fragile amid the concern that a more aggressive move by central banks to curb rising inflation will challenge the global economic recovery. This, in turn, offered support to the Japanese yen as a safe haven. The flight to safety triggered a further decline in US Treasury yields, narrowing the US-Japan rate spread and helping to cap USD/JPY gains.

Traders were also reluctant, preferring to stay on the sidelines. before Fed Chairman Jerome Powell’s speech at the ECB forum in Sintra, scheduled for later during the American session. Investors will be looking for further clues about the Fed’s policy tightening path, which will play a key role in influencing short-term dollar price dynamics. This, in turn, will help investors determine the next directional move for the USD/JPY pair.

USD/JPY technical levels