A Firmer USD Keeps USD/JPY Around Session Highs

ByBarbara Byrne

Oct 5, 2021

With the start of the European session just around the corner, the USD/JPY duo continued its bullish stance and was last seen lingering at the upper end of its trading volume range, close to the 111.15-20 zone. The pair gained a foothold on Tuesday and moved closer to previous swing highs as demand for US currency recovered, bolstered by expectations for a Federal Reserve policy increase as early as this month. Investors appear to be confident that the Federal Reserve will begin winding down its large post-pandemic stimulus program as soon as November and that interest rates will increase in 2022.

In addition, bulls drew inspiration from a minor increase in the yields on US Treasury bonds, which was viewed as another element supporting the USD. Nonetheless, a generally lower trading tone in the stock markets supported the relatively secure Japanese Yen and prevented any additional advances in the USD/JPY pairing to a bare minimum, at least for the foreseeable future.

Energy Prices and PMI

Investors appear to be concerned that the ongoing rise in crude oil and energy costs could exacerbate inflation and undermine the world economic rebound, as previously reported. As a result, caution should be exercised before concluding that the recent decline from levels close to the 112.00 level has taken its course and putting new bullish wagers around the USD/JPY duo.

Market investors are now waiting for the release of the ISM Services PMI, which they believe will provide a new impetus. This, together with the yields on US Treasury bonds and an expected speech by Federal Reserve Governor Randal Quarles, will have an impact on the USD. Aside from that, the overall market’s risk mentality should help investors to take advantage of some short-term changes in the USD/JPY exchange in the near term.

Technical and Fundamental Summary

USD/JPY CHART. Source:  Tradingview.com

As European traders prepare for Monday’s opening bell, the USD/JPY flirts with 111.00 and reaches an intraday high of 111.11. The high-risk duo had earlier fallen as a result of lower US Treasury yields, which weighed on the US dollar, but the recent recovery could be attributed to a shift in attitude. USD/JPY loss was triggered by a failure to deliver a definitive break over the 112.00 mark, which was combined with overbought RSI levels to cause the most recent decline, which targeted August highs of 110.80.

The prohibition of Evergrande from dealing in Hong Kong, as well as the United States’ displeasure with China’s activities around Taiwan, impacted the market’s attitude. Meanwhile, the Federal Reserve’s trimming frenzy is becoming more forceful, which has assisted the US Treasury yields in reversing a three-day downward trend. The recent setback could be attributed to higher inflation and consumer confidence data in the United States.

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