USD/JPY recovery fails at 142 amidst fears of tough policies by the Fed

The USD/JPY found rejection around the 142 level in the 4-hour time frame, leading to a descending channel with a potential target of $140. This article will delve into the current market conditions, major indicators, and external factors influencing the pair’s performance.

This pair has been experiencing strong bearish momentum, struggling to recover from last week’s losses, which amounted to 1.7%. This decline indicates significant selling pressure on the pair, with sellers continuing to dominate the market sentiment.

The US Dollar Index (DXY), which measures the dollar’s strength against a basket of major currencies, has shown signs of recovery near the 102 level. This resurgence in the DXY can be attributed to increased anticipation of an imminent rise in interest rates by the Federal Reserve. As expectations of a rate hike grow, the USD/JPY is likely to face additional downward pressure.

Currently, there are 10 major technical indicators signalling a sell position for the USD/JPY, while 9 indicators remain neutral, and 6 indicate a buy position. These mixed signals indicate a degree of uncertainty in the market, with traders cautious about the pair’s future direction.

The S&P 500, a benchmark index for the U.S. stock market, managed to recover from earlier losses on Monday. This recovery is seen as a significant milestone for the risk-on market sentiment. As investors regain confidence in the stock market, it may affect the safe-haven appeal of the Japanese yen and indirectly impact the USD/JPY pair.

Upcoming economic releases, such as nonfarm payrolls and labour cost data, will play a crucial role in determining whether the Federal Reserve will resume its policy tightening measures. Traders are anticipating positive labour cost figures, which increase the likelihood of further tightening, including interest rate hikes, which could have implications for the USD/JPY trading pair.

The yields on the 10-year U.S. Treasury bonds have recently gained by 4.08%. This increase in yields suggests growing optimism in the market and may potentially strengthen the U.S. dollar against the Japanese yen. Investors closely monitor bond yields as they can impact currency valuations.