- USD/JPY edges down on Wednesday and an earlier modest intraday uptick lacked bullish conviction.
- Bets for smaller Fed rate hikes continue to weigh on the USD and act as a headwind for the pair.
- Hawkish BoJ expectations, recession fears benefit the safe-haven JPY and contribute to a bearish ambiance.
The USD/JPY pair falters at the 130.00 psychological mark on Wednesday and reverses earlier gains. Spot prices remain squeezed against the upper trend line of a falling multi-month channel as the European session evolves. Without a concerted breakout from this channel higher, the default expectation remains for bulls to eventually capitulate and the broader medium-term downtrend to continue lower. Without a clear bearish signal or catalyst, however, there is still an outside risk of an upside breakout emerging.
The US Dollar remains on the defensive near a nine-month low, which, in turn, is seen as a key factor acting as a headwind for the USD/JPY pair. The markets now seem convinced that the Fed will soften its hawkish stance amid signs of easing inflationary pressures and have been pricing in a smaller 25 bps rate hike in February. This keeps a lid on the recent recovery in the US Treasury bond yields and continues to weigh on the Greenback.
The Japanese Yen (JPY), on the other hand, draws support from fresh speculation that high inflation may invite a more hawkish stance from the Bank of Japan (BoJ) later this year. The bets were lifted after the latest CPI report from Japan showed that consumer inflation rose to a 41-year high level of 4% in December. Apart from this, worries about a deeper global economic downturn benefit the safe-haven JPY and contribute to a continued bearish bias regarding the USD/JPY pair.
The aforementioned fundamental backdrop favors bearish traders and, along the with technical factors mentioned above, suggests that the path of least resistance for the USD/JPY pair is to the downside. The downside, however, seems cushioned as traders might prefer to move to the sidelines ahead of this week's important US macro releases, including the Advance Q4 GDP print and the Core PCE Price Index. For the Japanese Yen, the next key macroeconomic event is the BoJ's Summary of Opinions at 23:50 GMT later today, which will include forecasts for inflation and growth, and could spur demand for the Yen if those forecasts remain elevated. After that, the main focus moves to the highly-anticipated FOMC monetary policy meeting, scheduled for next week.
In the meantime, the US bond yields will play a key role in influencing the USD price dynamics in the absence of any relevant market-moving economic data from the US. Apart from this, traders will take cues from the broader risk sentiment to grab short-term opportunities around the USD/JPY pair.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds above 1.0700, eyes on Powell
EUR/USD edged lower toward 1.0700 in the early European session but managed to hold above that level. As investors await speeches from ECB officials and FOMC Chairman Jerome Powell, the pair struggles to make a decisive move in either direction.
GBP/USD falls to fresh monthly low below 1.2000
GBP/USD came under renewed bearish pressure and touched its lowest level in a month below 1.2000 on Tuesday. Despite the modest improvement witnessed in risk mood, the US Dollar holds its ground and weighs on the pair as focus shifts to FOMC Chairman Powell's speech.
Gold retreats below $1,870 as US yields rebound
Gold price erased its daily recovery gains and turned flat slightly below $1,870 heading into the American session. Following a downward correction earlier in the day, the benchmark 10-year US Treasury bond yield staged a rebound and caused XAU/USD to turn south ahead of FOMC Chairman Powell's speech.
Will Bitcoin price test $20,000 again?
Bitcoin price shows clear signs of distribution occurring on the four-hour chart, which indicates the possibility of a trend reversal. Moreover, BTC has been consolidating for more than two weeks with no direction in sight.
Central banks, markets and the economy: Three times wrongfooted
In the US, financial conditions have eased in recent months and weighed on the effectiveness of the Fed’s policy tightening. Jerome Powell recently gave the impression of not being too concerned, so markets rallied.