USD/JPY Surges as Risk Appetite Boosts Market Sentiment
The USD/JPY pair starts the week strong, with limited upside potential noted. A positive risk tone in the market is diminishing the demand for the safe-haven JPY and providing some support to the major currency pair. Traders are advised to keep an eye on the upcoming BoJ and Fed policy decisions scheduled for Wednesday.
During the Asian trading session on Monday, the USD/JPY pair climbs to the 154.35 region as investors reposition themselves ahead of key central bank events this week. The BoJ and Fed are set to announce their policy decisions after their two-day meetings, with market sentiment leaning towards a risk-on attitude, leading to a weakening JPY and helping the USD/JPY pair gain momentum. However, further upward movement may be limited due to differing expectations for the BoJ and Fed policies.
The BoJ is anticipated to reduce bond purchasing and potentially raise interest rates, while the market is already pricing in the possibility of the Fed starting an easing cycle in September with three interest rate cuts by year-end. The recent US Personal Consumption Expenditures (PCE) Price Index release indicated an improved inflation environment, keeping the USD bulls on the back foot.
Therefore, investors are advised to wait for strong buying momentum before confirming a bottom for the USD/JPY pair and considering a continuation of the recent bounce from levels below 152.00. Despite a breakdown below the 100-day Simple Moving Average last week, a slightly oversold Relative Strength Index on the daily chart prompted some short-covering.
In summary, the USD/JPY pair is showing strength as market sentiment improves, but caution is advised ahead of the BoJ and Fed policy decisions. Investors should monitor key levels and indicators to make informed decisions in the volatile forex market.