- USD/JPY gained some traction for the second consecutive session on Monday.
- Expectations that Fed will sound less dovish prompted a short-covering move.
- Softer US bond yields kept the USD bulls on the defensive and might cap gains.
The USD/JPY pair reversed an intraday dip to the 109.60 region and has now climbed to the top end of its daily trading range heading into the North American session. The pair was last seen hovering around the 109.75-80 region, up over 0.10% for the day.
The pair gained some positive traction for the second consecutive session on Monday and is now looking to build on last week’s goodish rebound from the 109.20 area, or 50-day SMA support. This also marked the fourth day of a positive move in the previous five and seemed rather unaffected by a subdued US dollar price action.
The market might have already started pricing in a slightly less dovish Fed in the face of rising inflationary pressures. It is worth recalling that the pace of inflation in the US climbed to a 13-year high in May. This, in turn, seemed to have prompted traders to lighten their bearish bets around the USD/JPY pair.
Apart from this, the underlying bullish sentiment in the financial markets undermined the safe-haven Japanese yen and extended some additional support to the USD/JPY pair. That said, a softer tone surrounding the US Treasury bond yields might hold bulls from placing aggressive bets and cap any further gains.
There isn’t any major market-moving economic data due for release from the US on Monday. Investors might also prefer to wait on the sidelines heading into the FOMC meeting on June 15-16. This further makes it prudent to wait for some follow-through buying before positioning for any further appreciating move.
From a technical perspective, sustained strength beyond the key 110.00 psychological mark might be seen as a fresh trigger for bullish traders and pave the way for additional gains. The USD/JPY pair might then accelerate the move up and climb back to test monthly swing highs, around the 110.30-35 supply zone.
Technical levels to watch
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