December 5,2022 1:52 AM ET
By:AnalysisWatch
The USD/JPY pair is struggling to make any notable gains on Monday, fluctuating in a narrow trading range around the very important 200-day SMA until early European trading. The pair is currently trading just above the mid-134.00 level and remains within striking distance of a four-month low reached on Friday amid continued US dollar selling.
As investors look past Friday's positive monthly U.S. jobs report, expectations that the Federal Reserve will slow the pace of its monetary tightening continue to weigh on the greenback. The USD Index, which measures the greenback's performance against a basket of currencies, is falling to its lowest level since late June. In addition, recent aggressive comments by Bank of Japan (BoJ) board member Asahi Noguchi are supporting the Japanese yen and acting as a headwind for the USD/JPY currency pair.
However, recent optimism over the easing of COVID-19 restrictions in several Chinese cities prevents any notable gains for the safe-haven JPY. In addition, the generally positive sentiment on U.S. government bond yields is providing some support to the USD/JPY pair and helping to limit the downtrend, at least for now. The mixed fundamental environment discourages traders from placing aggressive bets and leads to subdued or range-bound price action on the first day of the new week.
From a technical perspective, Friday's break below the 200 DMA for the first time since February 2021 could be seen as a fresh trigger for bearish traders. The inability of the USD/JPY to attract buyers or post a significant recovery underpins the negative outlook. This, in turn, suggests that the path of least resistance for the major currency is to the downside and supports the prospects for an extension of the recent sharp decline from a 32-year high reached in October.