• Follow-through USD strength helps limit losses.
• Global risk aversion trade underpins JPY’s safe-haven appeal.
• Focus remains on the very important FOMC decision.
The USD/JPY pair lacked any firm directional bias at the start of a new trading week and seesawed between tepid gains/minor losses.
The pair initially touched an intraday high level of 106.15 before dropping back closer to Friday's over one-week lows. A fresh wave of global risk aversion trade, which tends to benefit the Japanese Yen's safe-haven appeal, prompted some fresh selling at higher levels.
However, a follow-through US Dollar buying interest extended some support and helped limit deeper losses. This coupled with the recent political scandal in Japan, leading to a massive drop in support from the Japanese PM Shinzo Abe, now seems to have partly offset the negative factors and assisted the pair to bounce back to the 105.90-95 band.
Moreover, investors also seemed reluctant to place aggressive bets ahead of this week's key event risk - the highly anticipated FOMC meeting, and further contributed to the pair's subdued/range-bound price action on Monday.
Technical outlook
Omkar Godbole, Analyst and Editor at FXStreet writes: “The greenback will likely surge across the board if the Fed puts more stress on the inflationary impact of trade wars (protectionist policies). However, hawkish Fed may also push the 10-year treasury yield above 3 percent, triggering risk aversion in the stocks.”
“Hence, the USD/JPY pair will likely fade the post-Fed spike and drop below 105.00 in the subsequent days. The view gels well with the bearish set up as indicated by the descending weekly 5-MA and 10-MA,” he adds further.
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