USD/JPY jumps to 140.00 neighbourhood amid broad-based USD strength, ahead of US data

The USD/JPY pair stages a solid bounce from sub-139.00 levels, or a one-week low touched this Thursday and builds on the momentum through the early part of the European session. Spot prices climb back closer to the 140.00 psychological mark in the last hour, snapping a three-day losing streak and stalling this week's retracement slide from the 141.00 neighbourhood, or the YTD peak.

The US Dollar (USD) attracts fresh buyers following the overnight modest pullback from its highest level since mid-March and turns out to be a key factor that assists the USD/JPY pair to regain positive traction. The USD uptick could be attributed to a goodish pickup in the US Treasury bond yields, resulting in the widening of the US-Japan rate differential. This, in turn, is seen weighing on the Japanese Yen (JPY) and providing an additional boost to the major.

That said, diminishing odds for another rate hike by the Federal Reserve (Fed) might hold back the USD bulls from placing fresh bets and cap the USD/JPY pair. In fact, Fed Governor Philip Jefferson said on Wednesday that pausing rate hikes at the next FOMC meeting would offer time to analyse more data before making a decision about the extent of additional tightening. Apart from this, Philadelphia Fed President Patrick Harker also favoured pausing at the next meeting.

This, along with the prospect of Japanese authorities intervening in the markets and the prevalent cautious mood, could lend support to the safe-haven JPY and contributes to keeping a lid on the USD/JPY pair. It is worth recalling that Japan’s Vice Finance Minister for international affairs, Masato Kanda, hinted on Wednesday that authorities may act to curd the sinking Yen, saying that they will closely watch currency market moves and respond appropriately as needed.

The market sentiment, meanwhile, remains fragile amid worries about a global economic slowdown, particularly in China. A private survey released today showed that China’s manufacturing sector unexpectedly move into the expansion territory in May. That said, official data earlier this week had shown a sustained downturn. This, to a larger extent, overshadows the progress towards averting an unprecedented US debt default and tempers investors' appetite for riskier assets.

Hence, it will be prudent to wait for strong follow-through buying before placing fresh bullish bets around the USD/JPY pair and positioning for any further appreciating move. Market participants now look to the US economic docket - featuring the release of the ADP report on private-sector employment, the usual Weekly Initial Jobless Claims and the ISM Manufacturing PMI. This might influence the USD price dynamics and produce short-term trading opportunities.

Technical levels to watch