USD/JPY erases daily gains, trades flat near 111

• Wall Street records modest losses in the early trade.
• US Dollar Index consolidates losses below mid-94s.
• The BoJ is scheduled to release its monetary policy statement on Tuesday.

The USD/JPY pair is fluctuating in a tight range on Monday as investors are getting ready for the BoJ to announce its monetary policy decisions in the Asian session. After spending the majority of the day above the 111 mark, the pair came under a modest selling pressure and touched a fresh daily low at 110.93 before returning to the daily opening level of 111.

Today’s data from the United States showed that the pending home sales rebounded in June with a monthly 0.9% increase following May’s 0.5% contraction and beat the market expectation of +0.1%. Furthermore, the Dallas Fed’s manufacturing index eased to 32.2 in July from 36.5 in June but came in above the experts’ estimate  of 31. Despite these data, the US Dollar Index struggled to gain traction and was last seen down 0.4% on the day around 94.28.

In the meantime, major equity indexes in the U.S. started the day in the negative territory to reflect a weak appetite for riskier assets, which makes it difficult for the pair to stage a recovery. Nonetheless, investors are likely to wait until the BoJ’s announcements before taking large positions.

“We still hold the view that the BoJ will not change the yield target this week, as the risk of a stronger JPY would be clearly counterproductive for it to reach the inflation target. That said, a policy adjustment (fine-tuning) in Q3 has increased significantly,” Danske Bank analysts noted in a recently published report.

Technical outlook

The initial support for the pair aligns at 109.70 (50-DMA) ahead of 110 (psychological level) and 109.35 (Jun. 26 low). On the upside, resistances align at 111.60 (20-DMA), 112 (psychological level) and 112.60 (Jul. 20 high).