The USD/JPY continued to trade in a horizontal consolidation pattern as the European day began to unfold. The relatively secure Yen was supported by cautious market sentiment, which worked as a headwind for the Yen-Dollar pair.
In addition to rising US bond rates, hawkish Fed predictions helped to strengthen the Dollar and provided some support.
Overview Of The Technical Aspects
USD/JPY CHART Source: Tradingview.com
Despite the lack of a clear directional trend, the USD/JPY pair was constrained to a small trading zone, just above the mid-113.00s, heading into the European session.
Through the first few hours of trading on Thursday, a mix of diverging factors failed to offer any major impetus to the USD/JPY pair, which resulted in subdued or range-bound price movement throughout the day.
An Overview Of The Fundamentals
Increased geopolitical tensions have held recent optimism at bay, despite diminishing concerns about the economic consequences of the new Omicron form of the coronavirus.
An indication of this was the softening of sentiment in the equity markets, which benefited the relatively secure Japanese Yen while acting as a headwind for the major currency.
According to Reuters, investors have been warier following President Joe Biden’s ultimatum on Tuesday to slap severe economic and other sanctions on Russia if it invades Ukraine.
This follows the recent announcement by the United States that it will not be sending an official team to the 2022 Winter Olympics in Beijing.
The demonstration was intended to express opposition to China’s alleged breaches of human rights and activities against Muslims in the Uyghur autonomous region.
The discoveries overshadowed the announcement that the third dosage of Pfizer’s COVID-19 vaccine eradicated the Omicron strain in laboratory tests, which was released earlier in the day on Wednesday.
Nonetheless, the downside is being muted by a minor increase in demand for the US Dollar, which is being backed by expectations of a higher rate of Fed policy tightening shortly.
The markets appear to be convinced that the Federal Reserve will be obliged to adopt a more aggressive policy response to keep inflation from rising too quickly.
This, together with a continued rise in the rates on US Treasury bonds, helped to keep the Greenback strong and provide some stability to the USD/JPY pair.
On the other hand, investors decided to remain in the reserves ahead of the publication of the US CPI statement on Friday.
The newest consumer inflation data in the United States might have an impact on the Federal Reserve’s decision to withdraw its stimulus at a quicker pace, paving the way for an interest rate rise next year.
It is worth noting that the currency markets are indicating the prospect of a possible liftoff in May 2022 as a possibility. The data will thus play a critical role in driving USD demand over the short term and in determining the next leg of a directional shift for the USD/JPY pair in the long run.