The USD/JPY pair maintained its bid tone coming into the North American session, but struggled to find acceptance or build on momentum above the 114.00 level.
The pair extended its overnight rebound from the 113.40 region, representing ascending trend-line support stretching from September swing lows, and gained some traction on Tuesday. This was the second consecutive day of bullish movement, which was fueled by the prevailing risk-on sentiment, which tends to undercut the safe-haven Japanese yen.
The increase, however, lacked bullish conviction as new selling emerged around the US dollar, pulled down by an extension of the current slide in US Treasury bond yields. Indeed, the yield on the benchmark 10-year US government bond has fallen closer to 1.60 % , yet aggressive Fed predictions should operate as a tailwind.
On Friday, Fed Chair Jerome Powell reiterated that the US central bank is on pace to begin tapering its bond purchases by the end of the year. Markets have also factored in the prospect of an interest rate hike in 2022, owing to concerns that the current general rally in commodity prices may fuel inflation.
The underlying background appears to be skewed in favor of bullish bets, implying that greater gains are possible.Nonetheless, investors are unlikely to place large wagers ahead of Thursday’s Bank of Japan policy meeting and the Advance US Q3 GDP report. As a result, aggressive bullish traders should exercise care.
Market players are currently anticipating the publication of the Conference Board’s Confidence Index, Richmond Manufacturing Index, and New Home Sales for the United States. This, together with US bond yields and overall market risk sentiment, should help traders seize some short-term chances in the USD/JPY pair.