• A combination of factors prompted further selling around the USD / JPY on Monday.
  • Falling US bond yields kept dollar bulls on the defensive and exerted some pressure.
  • The risk aversion sentiment benefited the safe haven JPY and also contributed to the seller bias.
  • The Fed’s surprise hawkish turn acted as a tailwind and helped limit any further losses.

USD / JPY fell to a one-week low, around the 109.70 region during the Asian session, although it recovered a few pips afterwards. The pair was last seen just below the key psychological 110.00 bar, down nearly 0.20% for the day.

Following the good two-way price moves from the previous session, the USD / JPY pair encountered new supply on the first day of a new trading week and was put under pressure by a combination of factors. This marked the second day of a negative move over the previous three and moved the pair away from two-and-a-half-month highs, hit in reaction to the Fed’s sudden shift.

The prevailing risk aversion atmosphere, exemplified by a generally weaker tone in the equity markets, supported the safe haven for the Japanese yen and put some pressure on the USD / JPY pair. Bearish traders also took inspiration from the continued decline in yields on US Treasury bonds. In fact, the benchmark 10-year US government bond yield fell to its lowest level since February.

On the flip side, the US dollar consolidated strong post-FOMC gains and did little to provide any significant boost to the USD / JPY pair. However, the Fed’s surprise decision to advance its timeline for the first post-pandemic interest rate hikes continued to act as a tailwind for the dollar. This, in turn, has helped limit larger losses for the Major, at least for now.

There is no significant economic data on market developments to be released on Monday in the United States. Therefore, US bond yields will play a key role in influencing the price dynamics of the US dollar. Apart from this, traders could further take inspiration from the broader market risk sentiment to seize short-term opportunities around the USD / JPY pair.

Technical levels to watch



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