Title: USD/JPY struggles for direction, stuck in a range around 135.00 as traders await US CPI

August 10, 2022 02:54 AM ET

By: AnalysisWatch

The USD/JPY pair struggled to gain ground on Wednesday and remained confined to a range around the 135.00 mark for the second day in a row.

The subdued price action was due to investors' reluctance to make aggressive bets ahead of the crucial US consumer inflation figures to be released during the early North American trading session. The U.S. consumer price index report would provide fresh clues on the Fed's policy tightening stance. This, in turn, would play a key role in influencing the U.S. dollar and provide a new directional impetus to the USD/JPY pair.

In the meantime, the large divergence between the Fed and the Bank of Japan continues to act as a tailwind for the USD/JPY pair. In fact, markets are expecting about a 70% probability of a 75 basis point rate hike by the Fed at the September meeting. In contrast, the BoJ has repeatedly stated that it will maintain its ultra-loose monetary policy and keep the 10-year Japanese government bond yield at 0%.

Nevertheless, the prevailing cautious sentiment provides some support for the safe-haven JPY and seems to limit the upward trend of the USD/JPY pair. Market sentiment remains fragile amid rising recession fears and tensions between the US and China over Taiwan. The mixed fundamental environment urges caution before positioning for a firm intraday direction. This in turn suggests that the pair is more likely to remain range-bound in view of the important data risk.