Title: USD/JPY drops back closer to 138.00 mark, fresh daily low amid sustained USD selling

November 29, 2022 3:29 AM ET

By:AnalysisWatch

The USD/JPY fails to capitalize on the previous day's recovery from the 137.50 level, or a three-month low, and encounters fresh supply on Tuesday.

Intraday selling picks up during early European trading, pulling spot prices back closer to 138.00 in the final hour.

The U.S. dollar's overnight bounce off a technically significant 200-day SMA is fading rather quickly in the face of expectations that the Fed will slow the pace of its monetary tightening. Indeed, markets now expect the Fed to deliver a relatively smaller 50 basis point rate hike in December, leading to the recent sharp decline in U.S. Treasury yields. This in turn continues to weigh on the USD and is seen as a major factor exerting downward pressure on the USD/JPY currency pair.

The Japanese yen, in turn, is receiving support from speculation that the Bank of Japan (BoJ) will abandon its ultra-loose policy. A study on Tuesday showed that more than 90% of economists believe that the BoJ's next monetary policy move will be to scale back its massive monetary easing. However, this change is not expected before the second half of 2023. This and a positive risk tone could undermine the safe-haven JPY and provide support to the USD/JPY.

Market participants are now looking forward to the release of the Conference Board's US Consumer Confidence Index, which is due later in the early North American session. This, along with US bond yields, will influence the USD's price dynamics and provide some lift to the USD/JPY pair. Traders will also look to the risk sentiment of the overall market to take advantage of short-term opportunities. However, the main focus will be on Fed Chairman Jerome Powell's speech on Wednesday and the NFP report on Friday.