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USD/JPY struggles to find direction trapped in a range around the 138.00 level

  • A mix of divergent factors fails to give USD/JPY a significant boost on Wednesday
  • Diminishing odds of a 100 basis point Fed interest rate hike in July weighs on the dollar and acts as a headwind for the pair.
  • The divergence between Fed and BoJ monetary policies helps limit deeper losses ahead of Thursday’s BoJ decision.

The pair USD/JPY it is struggling to take advantage of the previous day’s good bounce from the 137.40-137.35 area and is moderately and range bound on Wednesday. The pair oscillates between tepid gains and minor losses during the European session just above the 138.00 level.

The US dollar remains under pressure for the fourth day in a row and weakening near a two-week low, amid the decrease in expectations for a more aggressive rate hike by the Federal Reserve in July. Indeed, several FOMC members signaled last week that they will likely stick to a 75 basis point rate hike at the next policy meeting on July 26-27. This, in turn, is seen as a key factor acting as a headwind for the USD/JPY pair.

However, investors seem convinced that the recent rise in US inflation, which has reached the highest level in four decades, will force the Fed to make a more significant rate hike this year. Speculation continues to support the high yields on US Treasury bonds, which could help the dollar stem its recent corrective decline from two-decade highs. Investors may also refrain from opening bearish positions amid expectations of a more dovish Bank of Japan.

The Bank of Japan has repeatedly stated that it will maintain its ultra-loose monetary policy and that it will make it even more flexible if necessary. The divergence between the Fed and the Bank of Japan supports the prospects for some buying at lower levels around the USD/JPY pair and for the recent strong move higher to continue. That said, investors seem reluctant, preferring to wait on the sidelines ahead of the Bank of Japan’s monetary policy decision, due to be announced on Thursday.

In the meantime, a positive risk tone could weigh on the safe-haven Japanese yen and offer some support to the USD/JPY pair. Market participants are now awaiting the release of US Existing Home Sales data to gain some momentum later in the early American session. Additionally, US bond yields and general market risk sentiment could allow investors to take advantage of some short-term opportunities.

USD/JPY technical levels to watch

USD/JPY

Overview
last price today 138.09
Today I change daily -0.11
Today Daily change % -0.08
Daily opening today 138.2
Trends
daily SMA20 136.52
daily SMA50 133.08
daily SMA100 128.34
daily SMA200 121.38
levels
Previous daily high 138.39
Previous Daily Low 137.38
Previous Weekly High 139.39
Previous Weekly Low 135.99
Previous Monthly High 137
Previous Monthly Low 128.65
Daily Fibonacci 38.2% 138.01
Daily Fibonacci of 61.8% 137.77
Daily Pivot Point S1 137.59
Daily Pivot Point S2 136.98
Daily Pivot Point S3 136.57
Daily Pivot Point R1 138.6
Daily Pivot Point R2 139
Daily Pivot Point R3 139.61

Source: Fx Street

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