USD/JPY holds above 149.00 mark, upside remains capped on Israeli-Palestinian conflict

The USD/JPY pair struggles to capitalize on Friday's positive move and opens with a modest bearish gap on the first day of a new week. Spot prices, however, manage to rebound a few pips from sub-149.00 levels, or the daily low, though lack follow-through in the wake of escalating geopolitical tensions in the Middle East, which tends to benefit the safe-haven Japanese Yen (JPY).

The Hamas militant group in Gaza, Palestine, attacked Israeli towns in an unprecedented move on Saturday. In response, Israel launched airstrikes on Gaza and declared war against the Palestinian enclave of Gaza on Sunday, resulting in hundreds of casualties on both sides. This, in turn, took its toll on the global risk sentiment and drove some haven flows towards the JPY. This, along with subdued US Dollar (USD) price action, is seen acting as a heading for the USD/JPY pair.

Friday's mixed US monthly jobs data (NFP) showed that the economy added 336K jobs in September, surpassing even the most optimistic estimates. Adding to this, the previous month's reading was also revised higher to 227K from 187K, pointing to a still-tight labour market. This, in turn, reaffirms bets for at least one more rate hike by the Federal Reserve (Fed) by the end of this year, which remains supportive of elevated US Treasury bond yields and lends some support to the USD.

Additional details of the report, meanwhile, revealed that wage growth remained moderate during the reported month, easing inflationary concerns. This, in turn, holds back the USD bulls from placing fresh bets and caps the upside for the USD/JPY pair. Traders also seem reluctant and prefer to wait on the sidelines ahead of this week's release of the FOMC monetary policy meeting minutes on Wednesday, followed by the latest US consumer inflation figures on Thursday.

In the meantime, speculations that Japanese authorities will intervene in the FX market to prop up the domestic currency contribute to capping the gains for the USD/JPY pair. In fact, Japan's top currency diplomat Masato Kanda warned last week that steady JPY falls over a protracted period could warrant intervention. In contrast, former top currency diplomat Naoyuki Shinohara said that Japan likely won't seek to reverse the JPY's downtrend as the falls reflect economic fundamentals.

The aforementioned mixed fundamental backdrop, in turn, warrants some caution for aggressive traders and could force the USD/JPY pair to extend its consolidative price action in the absence of any relevant market-moving economic data on Monday.

Technical levels to watch