- USD/JPY regained positive traction on Monday and reversed the previous session’s losses.
- A positive risk tone undermined the safe-haven JPY and extended some support to the pair.
- Fed rate hike bets, elevated US bond yields benefitted the USD and remained supportive.
The USD/JPY pair held steady above the 114.00 round-figure mark through the early part of the European session, albeit lacked any follow-through buying.
The pair regained positive traction on the first day of a new trading week and built on Friday's late rebound from a one-and-half-week low, around the 113.60-55 region. A generally positive tone around the equity markets undermined the safe-haven Japanese yen and turned out to be a key factor that acted as a tailwind for the USD/JPY pair.
Bulls further took cues from elevated US Treasury bond yields, bolstered by expectations for an early policy tightening by the Fed. In fact, the Fed funds futures indicate the possibility for an eventual Fed rate hike move by July 2022 and a high likelihood of another raise by November amid concerns about stubbornly high inflationary pressures.
The speculations were further fueled by Fed Governor Christopher Waller's comments, saying that the US central bank should speed up the pace of tapering to give more leeway to raise interest rates. This, in turn, assisted the US dollar to stand tall near a multi-month peak and extended additional support to the USD/JPY pair.
That said, growing anxiety over the impact of surging COVID-19 infections in Europe held traders from placing aggressive bullish bets and capped the upside for the USD/JPY pair. This, in turn, warrants some caution before positioning for a further near-term appreciating move in the absence of any major market-moving economic releases.
Moving ahead, traders this week will take cues from Wednesday's releases of Prelim US Q3 GDP print and Core PCE Price Index. This will be followed by the latest FOMC meeting minutes, which will influence the USD price dynamics. Apart from this, developments surrounding the coronavirus saga should provide a fresh directional impetus to the USD/JPY pair.
Technical levels to watch
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