- The optimistic expectations of the Fed benefit the dollar and help the USD / JPY to gain some traction.
- The pullback in US bond yields is preventing USD bulls from opening new positions and limiting the pair’s rally.
- Cautious market sentiment benefits the safe-haven JPY and also warrants caution for the pair’s bulls.
The pair USD/JPY remains virtually unchanged on the day around the 114.10 region at the start of the European session on Thursday and lacks any follow-on purchases.
After having shown resilience below the 114.00 level, the USD / JPY pair gained some positive traction on Thursday and reversed a portion of the decline of the previous day’s retracement from multi-year highs. The Prospects for an early tightening of monetary policies by the Fed acted as a tailwind for the US dollar, which in turn was seen as a key factor that offered some support to the pair.
Having said that, Cautious market sentiment, amid lingering concerns about stubbornly high inflation, benefited the safe-haven Japanese yen. Aside from this, the pullback in US Treasury yields prevented the USD bulls from opening new positions and limited any significant rally for the USD / JPY pair, justifying caution for the bulls.
Even from a technical perspective, the negative RSI divergence on the daily chart makes it prudent to wait for a strong continuation buy before positioning for any further bullish movement. Market participants are now looking forward to the US economic calendar, with the releases of the Philadelphia Fed Manufacturing Index and initial weekly jobless claims.
This, along with US bond yields and a scheduled speech by New York Federal Reserve Chairman John Williams, will sway the dollar and provide some boost later at the start of the American session. Investors will take more indications of the broader market risk sentiment to seize some short-term opportunities around the USD / JPY pair.
USD / JPY technical levels