USD/JPY eases from multi-week top amid modest USD weakness, downside seems cushioned – by hareshmenghani USDJPY Fed Bonds RiskAppetite Currencies
A modest USD weakness turns out to be a key factor acting as a headwind for the major.USD/JPY pair
touches a nearly five-week high on Tuesday, albeit struggles to capitalize on the move and seesaws between tepid gains/minor losses through the early European session. The pair is currently placed around the 134.40-134.35 area, nearly unchanged for the day, though the fundamental backdrop seems tilted in favour of bullish traders and supports prospects for additional near-term gains.
In fact, the markets are pricing in a greater chance of another 25 bps lift-off at the next FOMC meeting in May and the bets were lifted by a rise in short-term inflation expectations. Adding to this, the New Yorkreported on Monday that its barometer of manufacturing activity in the state increased for the first time in five months. In fact, the Empire State Manufacturing Index shot to 10.8 from -24.6 in March, beating estimates.
This, in turn, remains supportive of the elevated US Treasury bond yields and favours the USD bulls. In fact, the yield on the benchmark 10-year US government bond holds steady near a multi-week top, widening the US-Japan rate differential. This, along with the Bank of Japan's dovishand a generally positive risk tone, undermines the safe-haven Japanese Yen and lends support to the USD/JPY pair.
Even from a technical perspective, the recent sustained move beyond the 50-day and the 100-day Simple Moving Averages adds credence to the near-term positive outlook. This, in turn, suggests that the path of least resistance for the USD/JPY pair is to the upside and any corrective slide is likely to get bought into. Traders now look to the US housing market data for some impetus later during the early North American session.
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