- USD/JPY lacks any firm directional bias and remains confined in a narrow trading range.
- Traders prefer to move on the sidelines ahead of the crucial US consumer inflation data.
- The Fed-BoJ policy divergence, meanwhile, continues to act as a tailwind for the major.
The USD/JPY pair continues with its struggle to gain traction on Wednesday and remains confined in a range around the 135.00 mark for the second straight day.
The subdued price action comes amid investors' reluctance to place aggressive bets ahead of the crucial US consumer inflation figures, due for release later during the early North American session. The US CPI report would be looked upon for fresh clues about the Fed's policy tightening path. This, in turn, would play a key role in influencing the US dollar and provide a fresh directional impetus to the USD/JPY pair.
In the meantime, a big divergence in the policy stance adopted by the Fed and the Bank of Japan continues to act as a tailwind for the USD/JPY pair. In fact, the markets are pricing in around 70% chances of a 75 bps Fed rate hike at the September meeting. In contrast, the BoJ has repeatedly said that it will stick to its ultra-easy policy settings and its commitment to keep the 10-year Japanese government bond yield around 0%.
That said, the prevalent cautious mood offers some support to the safe-haven JPY and seems to cap the upside for the USD/JPY pair. The market sentiment remains fragile amid growing recession fears and US-China tensions over Taiwan. The mixed fundamental backdrop warrants caution before positioning for a firm intraday direction. This, in turn, suggests that the pair is more likely to prolong its range-bound price action heading into the key data risk.
Technical levels to watch
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