- USD/JPY has rebounded from the multi-week low hit this Friday.
- The recovery in US bond yields helps revive the demand for dollars and offers support to the pair.
- Investors are now awaiting the US PCE report for a significant trading boost.
The pair USD/JPY stops its intraday decline near 132.50 and quickly recovers more than 90 pips from the six-week low hit this Friday. The pair is now trading around the 133.35-133.40 area, and is still down almost 0.70% on the day.
As investors digest the less harsh FOMC decision and Thursday’s disappointing US GDP data, the dollar reverses much of its initial loss and hits its lowest level since July 5. A nice rebound in US Treasury yields is offering some support to the dollar. Given the post FOMC drop of nearly 500 pips from around 137.00, the above factors drive some intraday short covering around the USD/JPY pair on the last day of the week.
On the other hand, a further pick-up in global risk sentiment – as evidenced by some positive moves in equity markets – undermines the safe haven of the Japanese yen. This is another factor supporting the USD/JPY pair. Apart from this, a large divergence in the monetary policy adopted by the Federal Reserve and the Bank of Japan suggests that the USD/JPY pair may have formed a temporary bottom near the 132.50 area.
That said, it would be wise to wait for strong follow-on buying before positioning for any significant positive moves. Traders now await the release of US Personal Consumption Expenditures (PCE), the Fed’s preferred gauge of inflation. This, along with US bond yields, will weigh on dollar demand. Apart from this, the general market risk sentiment could produce short-term trading opportunities around the USD/JPY pair.
Technical levels
Source: Fx Street
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