USD/JPY trades just below weekly top amid positive risk tone, upside seems limited

USD/JPY steadily climbs back closer to the weekly high, though lacks bullish conviction.
A positive risk tone undermines the safe-haven JPY and acts as a headwind for the pair.
Rising bets for smaller Fed rate hikes weigh on the USD and continue to cap the upside.

Haresh Menghani FXStreet

The USD/JPY pair edges higher on Wednesday and inches back closer to the top end of its weekly range, though the intraday uptick lacks bullish conviction. The pair holds steady below the mid-132.00s through the early European session and is influenced by a combination of diverging forces.

A generally positive tone around the equity markets undermines the safe-haven Japanese Yen and lends some support to the USD/JPY pair. The upside, however, remains capped amid the emergence of fresh US Dollar selling, weighed down by expectations that the Federal Reserve will soften its hawkish stance. The bets were lifted by last week's data, which showed that the US wage growth in December and pointed to signs of easing inflationary pressures.

Furthermore, business activity in the US services sector contracted and hit the worst level since 2009 in December. This, in turn, reaffirmed expectations for relatively smaller rate hikes by the Fed, which keeps the US Treasury bond yields depressed near a multi-week low and continues to weigh on the buck. This, along with speculations that the Bank of Japan will tighten its monetary policy in the near future, acts as a headwind for the USD/JPY pair.

Traders, meanwhile, seem reluctant to place aggressive bets and prefer to wait for the release of the US consumer inflation figures on Thursday. The crucial US CPI report should provide some clarity on whether the Fed will have to increase its target rate beyond 5% to curb stubbornly high inflation. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the near-term trajectory for the USD/JPY pair.

In the meantime, the US bond yields could drive the USD demand in the absence of any relevant market-moving economic releases from the US. Apart from this, the broader risk sentiment will be looked upon for short-term trading opportunities around the USD/JPY pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the downside and any meaningful upside is more likely to get sold into.

Technical levels to watch

USD/JPY

Overview
Today last price	132.32
Today Daily Change	0.08
Today Daily Change %	0.06
Today daily open	132.24

Trends
Daily SMA20	133.25
Daily SMA50	137.36
Daily SMA100	140.84
Daily SMA200	136.55

Levels
Previous Daily High	132.48
Previous Daily Low	131.38
Previous Weekly High	134.78
Previous Weekly Low	129.51
Previous Monthly High	138.18
Previous Monthly Low	130.57
Daily Fibonacci 38.2%	132.06
Daily Fibonacci 61.8%	131.8
Daily Pivot Point S1	131.59
Daily Pivot Point S2	130.94
Daily Pivot Point S3	130.49
Daily Pivot Point R1	132.68
Daily Pivot Point R2	133.13
Daily Pivot Point R3	133.78

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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