USD / JPY struggles for direction and consolidates in a range below the 114.00 level

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  • The USD / JPY oscillates in a range on the first day of a new week.
  • Lousy US data on Friday and falling US bond yields weigh on the USD and limit the pair’s gains.
  • A combination of factors weighs on the JPY and helps limit the pair’s decline.

The pair USD/JPY lacks a firm directional bias and oscillates between lukewarm gains and minor losses below the 114.00 level during the European session on Monday.

A combination of divergent factors did not provide any significant boost to the USD / JPY pair and led to a subdued and range-bound price action on the first day of a new week. The US dollar remained on the defensive after data released on Friday showed that US consumer sentiment slumped to a 10-year low in November amid rising inflation. Aside from this, the pullback in US Treasury yields further weighed on the USD.

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Secondly, Cautious sentiment around equity markets benefited the safe-haven Japanese yen and it acted as a headwind for the USD / JPY pair. Having said that, Japan’s disappointing GDP figure limited any significant gains for the JPY and offered some support to the pair. The preliminary estimate showed that the economy contracted more than expected, 0.8% in the three months to September and 3.0% annualized.

This marked the first recession in two quarters, as Covid-19 State of Emergency Smashed Consumer Spending and Boosted Expectations for Prime Minister Fumio Kishida’s Stimulus Package. Apart from this, pessimistic comments from Bank of Japan (BoJ) Governor Haruhiko Kuroda prevented investors from opening aggressive bearish positions around the USD / JPY pair. Kuroda pointed out that the BoJ will not abandon flexible monetary policy even if Japan’s CPI reaches 1% next year.

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On the other hand, markets have been pricing in the prospects for an early tightening of monetary policies by the Federal Reserve amid a faster-than-expected rise in inflationary pressure. In fact, Fed fund futures indicate a 50% probability of a rate hike in July 2022 and a high probability of another hike in November. This should help limit USD losses and also ensures some caution before opening aggressive bearish positions around USD / JPY.

Market participants are now awaiting the US economic calendar, where the Empire State Manufacturing Index will be released. This, along with US bond yields, will influence USD price dynamics. Investors will take more indications of the broader market risk sentiment for some short-term opportunities around the USD / JPY pair.

USD / JPY technical levels

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