- USD/JPY drifts lower for the third straight day and is pressured by a combination of factors.
- The risk-off mood, along with the intervention warning, boosts the JPY and weighs on the pair.
- The emergence of fresh USD buying could lend some support and help limit deeper losses.
The USD/JPY pair extends the overnight retracement slide from the vicinity of the 141.00 mark, or a six-month high and remains under some follow-through selling on Wednesday. The pair maintains its offered tone through the early European session and currently trade around mid-139.00s, down over 0.20% for the day.
A combination of factors provides a goodish lift to the Japanese Yen (JPY), which, in turn, is seem exerting downward pressure on the USD/JPY pair for the third successive day. The disappointing release of the official Chinese PMI prints for May adds to worries about a global economic slowdown and tempers investors' appetite for riskier assets. This, along with the prospect of Japanese authorities intervening in the markets, boosts demand for the safe-haven JPY and contributes to the offered tone around the major.
In fact, Japan’s Vice Finance Minister for international affairs, Masato Kanda, hinted that authorities may act to curd the sinking Yen, saying that they will closely watch currency market moves and respond appropriately as needed. He added that they won't rule out every option available. Apart from this, the ongoing slide in the US Treasury bond yields results in the narrowing of the US-Japan rate differential and further benefits the JPY. That said, a more dovish stance adopted by the Bank of Japan (BoJ) might cap the JPY.
Apart from this, the emergence of fresh US Dollar (USD) buying should help limit losses for the USD/JPY pair. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs back closer to its highest level since mid-March touched on Tuesday and remains supported by hawkish Federal Reserve (Fed) expectations. Markets seem convinced that the US central bank will keep interest rates higher for longer and have been pricing in a greater chance of another 25 bps lift-off at the June FOMC meeting.
This, in turn, warrants caution before placing aggressive bearish bets around the USD/JPY pair. Market participants now look forward to the US economic docket, featuring the Chicago PMI and JOLTS Job Openings data. This, along with speeches by influential FOMC members and the US bond yields, will drive the USD demand. Apart from this, the broader risk sentiment should provide some impetus to the USD/JPY pair and allow traders to grab short-term opportunities.
Technical levels to watch
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