Misgivings On Omicron Keep USD/JPY Stable Above 113.00

Dollar Remains Depressed due to Improved Risk Appetite

On Tuesday, the USD/JPY struggled to acquire significant traction and was restricted to a narrow trading range. Hawkish Fed predictions continued to operate as a boost for the USD and provided some additional support to the currency.

The safe-haven Yen was underpinned by COVID-19 worries, which also helped limit advances in the face of falling US bond yields.

Analysis Of The Technical Details

USD/JPY CHART Source: Tradingview.com

Throughout the Asian trading session, the USD/JPY pair fluctuated inside a tight trading range and was last seen holding just above the mid-113.00s, barely above the neutral zone. Traders will also draw cues from the broader risk sentiment in the market.

Overview Of The Fundamentals

In the face of several diverging pressures, the USD/JPY pair could not build on the previous day’s small gains, and the pair’s price moved in a moderate and range-bound fashion on Tuesday.

The US Dollar held firm around a one-week high and remained strongly supported by expectations of a policy tightening by the Federal Reserve soon.

Nonetheless, the safe-haven Japanese Yen was supported by a generally milder risk tone, which limited the scope for further advances in the primary currency.

On Friday, the Consumer Price Index (CPI) for the United States confirmed market predictions that the Federal Reserve would pursue a more assertive policy approach to limit persistently inflationary pressure. The financial markets predict that liftoff will occur by June 2022 and that another boost will occur as early as November of that year.

Furthermore, this was considered an important aspect that continued to operate as a tailwind for the Dollar while also providing some strength to the USD/JPY pair. As a result, investors’ appetite for riskier assets has been dampened by growing concerns about the economic risks associated with the spread of the coronavirus variant known as the Omicron variant.

This was obvious in the generally cautious atmosphere that prevailed in the equity markets, resulting in haven movements towards the JPY. The flight to safety was reflected in a further decrease in the yields on US Treasury bonds, which further limited the upside potential of the USD/JPY pair. The US Producer Price Index (PPI) publication is expected to take place later in the early North American session.

This, in conjunction with the rates on US Treasury bonds, will impact the price movements of the USD and provide some momentum for the USD/JPY pair. The outcome of the Federal Open Market Committee’s monetary policy meeting, which will take place over two days, will remain the primary focus.

It is expected that the Federal Reserve will publish its choice on Wednesday, which will significantly impact the demand for the US Dollar in the immediate term. Aside from that, developments in the coronavirus drama would influence the direction of the USD/JPY pair’s next phase of a directional move.