The USD/JPY pair maintained its bid tone heading into the European session and was last seen hovering near the top end of its daily trading range, around the 111.15-20 region.
The pair regained positive traction on Tuesday and inched back closer to the overnight swing highs amid resurgent US dollar demand, bolstered by the prospects for an early policy tightening by the Fed. Investors seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November and raise interest rates in 2022.
Bulls further took cues from a modest uptick in the US Treasury bond yields, which was seen as another factor that acted as a tailwind for the greenback. That said, a generally weaker trading sentiment around the equity markets underpinned the safe-haven Japanese yen and kept a lid on any further gains for the USD/JPY pair, at least for the time being.
Investors now seem worried that the continued surge in crude oil/energy prices will stoke inflation and derail the global economic recovery. This, in turn, warrants some caution before confirming that the recent pullback from levels just above the 112.00 mark has run its course and placing fresh bullish bets around the USD/JPY pair.
Market participants now look forward to the release of ISM Services PMI for a fresh impetus. This, along with the US bond yields and a scheduled speech by Fed Governor Randal Quarles, will influence the USD. Apart from this, the broader market risk sentiment should allow traders to grab some short-term opportunities around the USD/JPY pair.
USD/JPY Long (Buy) Enter At: 111.582 T.P_1: 112.006 T.P_2: 112.576 S.L: 110.819
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