- A combination of factors prompted fresh selling around USD/JPY on Monday.
- A softer risk tone underpinned the safe-haven JPY and exerted some pressure.
- Retreating US bond yields weighed on the USD and added to the selling bias.
The USD/JPY pair continued losing ground through the mid-European session and dropped to a fresh daily low, below the key 115.00 psychological mark in the last hour.
The pair struggled to capitalize on last week's goodish rebound from the 114.15 area and met with a fresh supply on Monday, snapping two successive days of the winning streak. The prevalent cautious mood – as depicted by a weaker tone around the equity markets – benefitted the safe-haven Japanese yen and exerted some pressure on the USD/JPY pair. Bearish traders further took cues from retreating US Treasury bond yields, which undermined the US dollar.
That said, speculations for a larger Fed rate hike move at the March policy meeting – boosted by Friday's mostly upbeat US monthly jobs report – should act as a tailwind for the US bond yields. It is worth recalling that the headline NFP showed that the US economy added 467K jobs in January, surpassing consensus estimates pointing to a reading of 150K. Adding to this, the previous month’s reading was also revised sharply higher from 199K to 510K.
Moreover, Average Hourly Earnings posted a strong 0.7% MoM and 5.7% YoY growth during the reported month, which further lifted the market bets that the Fed will be more aggressive in raising rates to contain stubbornly high inflation. Hence, the market focus now shifts to the release of the US CPI report on Thursday. This will influence the near-term USD price dynamics and help determine the next leg of a directional move for the USD/JPY pair.
In the meantime, the US bond yields will drive the USD demand and provide some impetus amid absent relevant market-moving economic releases from the US. Apart from this, traders will take cues from the broader market risk sentiment to grab some short-term opportunities around the USD/JPY pair.
Technical levels to watch
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