USD/JPY trims intraday gains, back below 143.00 amid broad-based USD weakness
|- USD/JPY struggles to capitalize on its intraday positive move to the 143.50 area.
- The ongoing USD slide to a fresh monthly low acts as a headwind for the pair.
- A combination of factors could undermine the safe-haven JPY and offer support.
- Investors might also move to the sidelines ahead of the US CPI report on Tuesday.
The USD/JPY pair retreats nearly 90 pips from the daily high and drops back closer to mid-142.00s during the early European session on Monday.
The US dollar prolongs its recent sharp corrective pullback from a two-decade high touched last week and remains under heavy selling pressure on Monday. This, in turn, acts as a headwind for the USD/JPY pair. Furthermore, speculations that authorities may soon step in to arrest a freefall in Japanese yen also contribute to capping the upside for the major. In fact, Japanese Deputy Chief Cabinet Secretary Seiji Kihara urged the government to take necessary steps to counter excessive declines in the yen.
That said, a combination of factors should help limit the downside for the USD/JPY pair and support prospects for the resumption of a one-month-old strong bullish trajectory. A generally positive tone around the equity markets, along with a big divergence in the policy stance adopted by the Bank of Japan and the Federal Reserve, might undermine the safe-haven JPY. It is worth mentioning that the BoJ has been lagging behind other major central banks in the process of policy normalisation and remains committed to continuing with its monetary easing. In contrast, the Fed is expected to tighten its policy at a faster pace.
The markets, however, already seem to have priced in a supersized 75 bps rate hike move at the next FOMC meeting on September 20-21. Hence, the USD bulls might wait for the crucial US consumer inflation figures on Tuesday before placing fresh bets, which will play a key role in influencing the Fed's policy outlook. This, in turn, will drive the USD demand and provide a fresh directional impetus to the USD/JPY pair. In the meantime, traders might prefer to move to the sidelines amid absent relevant market-moving economic releases from the US.
Technical levels to watch
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