- USD/JPY regained positive traction on Monday and was supported by a combination of factors.
- Easing fears about Omicron boosted the risk sentiment and undermined the safe-haven JPY.
- Rising Fed rate hike bets, rebounding US bond yields boosted the USD and remained supportive.
The USD/JPY pair maintained its bid tone heading into the European session and was last seen hovering near the top end of its daily trading range, around the 113.00 mark.
A combination of factors assisted the USD/JPY pair to regain positive traction on the first day of a new week and reverse Friday's modest losses. The global risk sentiment stabilized a bit in reaction to reports from South Africa, suggesting that Omicron patients only had relatively mild symptoms. This was evident from a generally positive tone around the equity markets, which undermined the safe-haven Japanese yen and acted as a tailwind for the USD/JPY pair.
Bullish traders further took cues from a goodish rebound in the US Treasury bond yields from the lowest level since September. This, along with the prospects for a faster policy tightening by the Fed, helped revive the US dollar demand and provided an additional boost to the USD/JPY pair. In fact, the money markets indicate a high probability that the Fed would hike interest rates by May 2022 to contain stubbornly high inflationary pressures.
The market expectations were unaffected by Friday's mixed US payrolls report, showing that the economy added 210K jobs in November as against 550K anticipated. This, however, was offset by a sharp fall in the unemployment rate to 4.2% from 4.6% in October. Moreover, the Fed has acknowledged a sufficient labor market recovery to permit higher interest rates, which, in turn, favours the USD bulls and supports prospects for additional gains for the USD/JPY pair.
Even from a technical perspective, bulls, so far, have been showing some resilience ahead of mid-112.00s, which should now act as a strong base for the USD/JPY pair. That said, it will still be prudent to wait for a strong follow-through buying before positioning for any further appreciating move. There isn't any major market-moving economic data due for release from the US on Monday, further warranting some caution for aggressive bullish traders.
Technical levels to watch
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