USD/JPY stalls intraday positive move near 200 DMA, still well bid above mid-136.00s
- USD/JPY climbs to its highest level since March 10, albeit struggles to break through the 200 DMA.
- The BoJ’s dovish outlook weighs heavily on the JPY and acts as a tailwind amid a modest USD strength.
- Investors now look to the US ISM Manufacturing PMI for some impetus ahead of the FOMC meeting.
The USD/JPY pair builds on Friday's blowout rally and gains strong follow-through traction on the first day of a new week. The momentum lifts spot prices to the highest level since March 10, though pauses near a technically significant 200-day Simple Moving Average (SMA) resistance just ahead of the 137.00 mark. The pair, however, maintains its bid tone through the first half of the European session and is currently placed just above mid-136.00s, still up around 0.25% for the day.
The Japanese Yen (JPY) continues to be weighed down by the Bank of Japan's (BoJ) dovish outlook, which, along with a modest US Dollar (USD) strength, acts as a tailwind for the USD/JPY pair. It is worth recalling that the Japanese central bank on Friday left its ultra-loose monetary policy settings unchanged and also made no tweaks to its yield curve control (YCC) by a unanimous vote. Adding to this, the new BoJ Governor Kazuo Ueda said that the risk from tightening too hastily is larger than monetary policy falling behind the curve and added that it will be appropriate to continue monetary easing to achieve the 2% inflation target.
Apart from this, data released earlier this Monday showed that factory activity in Japan - the world's third-biggest economy - contracted for the sixth straight month in April, which, in turn, exerts additional downward pressure on the JPY. The USD, on the other hand, edges higher for the third successive day amid the prospects of the Federal Reserve (Fed) raising interest rates by another 25 basis points (bps) at the end of a two-day meeting on Wednesday. The markets, however, seem convinced that the US central bank will then hold rates steady for the rest of the year. This holds back the USD bulls from placing aggressive bets and caps the pair.
Furthermore, worries about economic headwinds stemming from rising borrowing costs could lend some support to the safe-haven JPY and contribute to keeping a lid on the USD/JPY pair, at least for the time being. In fact, the Advance USD GDP report released last week showed that growth in the world's largest economy slowed more than expected in the first quarter. Moreover, the official Chinese Manufacturing PMI declined to 49.2 in April from 51.9 in March and further fueled recession fears. Market participants now look forward to the release of the US ISM Manufacturing PMI, due later during the early North American session.
Apart from this, the broader market risk sentiment might further contribute to producing short-term opportunities around the USD/JPY pair. The focus, meanwhile, will remain glued to the outcome of the FOMC meeting on Wednesday and the closely-watched US monthly employment details, popularly known as the NFP report on Friday. This will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the major.
Technical levels to watch