The Japanese Yen (JPY) showed slight resilience against the US Dollar (USD) on Tuesday, maintaining its position despite a lack of substantial buying interest. The currency hovers near its lowest level since early August, reached the previous day. However, any significant gains for the JPY appear unlikely due to ongoing uncertainty surrounding the Bank of Japan‘s (BoJ) plans for interest rate hikes. This uncertainty, coupled with a generally optimistic risk sentiment in the market, is expected to limit the appeal of the safe-haven JPY.
Meanwhile, expectations of a more tempered approach to monetary policy by the Federal Reserve have contributed to elevated US Treasury bond yields, supporting the USD near a two-month high. As a result, any declines in the USD/JPY pair may be viewed as buying opportunities, suggesting a ceiling on further depreciation.
Market Highlights:
Japanese Prime Minister Shigeru Ishiba’s recent remarks have dampened market expectations for imminent interest rate increases from the BoJ.
US equity markets extended their rally on Monday, with the S&P 500 and Dow Jones Industrial Average reaching new all-time highs, fueled by optimism over robust earnings.
The US Dollar gained momentum, hitting its highest level since August 8, amid speculation of reduced interest rate cuts by the Federal Reserve.
Minneapolis Fed President Neel Kashkari stated that the latest job data indicates a resilient labor market, emphasizing that policy decisions will be guided by economic performance.
Fed Governor Christopher Waller suggested that the central bank should adopt a cautious approach regarding interest rate cuts, differing from the discussions at the September meeting.
The CME Group’s FedWatch Tool indicates that traders are anticipating a higher likelihood of a 25 basis points rate reduction in November, with over a 15% chance of no cuts.
The recent surge in 10-year US government bond yields, which have surpassed the 4% mark, further supports the bullish sentiment for the USD, constraining the low-yielding JPY.
As traders await the release of the Empire State Manufacturing Index later in the North American session, they also anticipate remarks from influential members of the Federal Open Market Committee (FOMC).
Technical Analysis: From a technical standpoint, any further decline in the USD/JPY pair is expected to attract buying interest near the 149.00 mark, potentially limiting downside movement around the 148.55-148.50 region. This area may serve as a critical support level; if breached, it could trigger aggressive selling, pushing prices below the 148.00 threshold towards last week’s low of around 147.35-147.30.
Conversely, sustained strength above the 150.00 psychological level could act as a catalyst for bullish traders. Oscillators on the daily chart remain in positive territory without indicating an overbought condition, suggesting that the USD/JPY pair may target the August monthly swing high of approximately 150.85-150.90. Continued buying momentum beyond the 151.00 mark would indicate that the market has found a bottom, potentially paving the way for further appreciation in the near term.
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