Japanese Yen adds to intraday gains; USD/JPY drops to 145.20 area ahead of US CPI

• The Japanese Yen snaps a two-day losing streak against the US Dollar on Tuesday. 
• Geopolitical risks benefit the safe-haven JPY and exert pressure on the USD/JPY pair.
• Investors look to the US CPI for a fresh impetus ahead of the FOMC on Wednesday.

The Japanese Yen (JPY) regains positive traction on Tuesday and reverses a part of its heavy losses against the US Dollar (USD) register over the past two days. Bulls retain control through the early European session, with the USD/JPY pair hitting a fresh daily low, around the 145.20 region in the last hour. Despite reports downplaying the prospect of an imminent policy change by the Bank of Japan (BoJ), investors seem convinced that the Japanese central bank will eventually start its journey out of negative rates early next year. This, along with persistent worries about the risk of a further escalation of geopolitical tensions in the Middle East, benefits the safe-haven JPY.

The USD, on the other hand, struggles to capitalize on the upbeat NFP-inspired positive move amid growing acceptance that the Federal Reserve (Fed) is done raising interest rates. This, in turn, triggers a fresh leg down in the US Treasury bond yields, which, in turn, is seen weighing on the Greenback. Meanwhile, data showing that producer prices in Japan grew at the weakest pace since February 2021 does little to impress bulls or lend any support to the USD/JPY pair. Investors, however, remain uncertain over the timing of when the Fed will start easing its monetary policy. Hence, the focus will remain glued to the outcome of a two-day FOMC policy meeting on Wednesday. 

In the meantime, Tuesday's release of the US consumer inflation figures will play a key role in influencing market expectations about the Fed's near-term policy outlook. This, in turn, should infuse some volatility in the FX market later during the early North American session and contribute to producing short-term trading opportunities around the USD/JPY pair. 

Daily Digest Market Movers: Japanese Yen extends its steady intraday ascent against USD

• The Japanese Yen turned out to be the worst-performing G10 currency on Monday after reports downplayed speculations that the Bank of Japan was close to tightening policy.
• A Reuters report on Friday, citing three sources familiar with the BoJ’s thinking, that Governor Ueda’s remarks last week on policy options were not intended to hint at a potential exit timing.
• Bloomberg News also reported on Monday, citing sources, that BoJ officials are yet to see enough evidence of strong wage growth to justify abandoning the negative rate policy this month.
• This comes on the back of the recent rally in the US equity markets, which closed at a new high for the year on Monday and in turn, exerted heavy downward pressure on the safe-haven JPY.
• A US defense official stated on Tuesday that Iran-backed Houthi rebels in Yemen fired a land-based cruise missile, reviving demand for the JPY and dragging the USD/JPY pair lower on Tuesday. 
• The JPY bulls seem rather unaffected by data showing that Producer Price Index (PPI) in Japan slowed for the 11th straight month in November and registered the weakest pace of growth since February 2021.
• The US Dollar, meanwhile, struggles to capitalize on the upbeat US jobs data-inspired positive move amid the uncertainty over when the Federal Reserve may start easing its policy rates and cut rates.
• A New York Fed survey showed on Monday that consumers expect inflation to be at 3.4% a year from now, down from an expectation of 3.6% in October and the lowest reading since April 2021.
• This, along with the stronger-than-expected US employment figures, lifted hopes of a soft landing for the US economy and pushed back against expectations for the first rate cut in March 2024.
• Investors now look forward to the crucial US consumer inflation data, which is expected to show that the headline CPI rose by 0.1% in November and the yearly pace ticked down to 3.1%.
• Meanwhile, the core gauge (excluding volatile food and energy prices) is anticipated to edge up from a 0.2% MoM rate to 0.3% in November and hold steady at 4.0% YoY.
• The focus, however, will remain glued to the highly-anticipated FOMC monetary policy decision on Wednesday, which will play a key role in influencing the near-term USD price dynamics.

Technical Analysis: USD/JPY bears need to wait for acceptance below 23.6% Fibo. level

From a technical perspective, the overnight failure near the 200-hour SMA and the subsequent fall during the Asian session on Tuesday warrants some caution for bullish traders. The USD/JPY pair, meanwhile, is showing some resilience below the 23.6% Fibonacci retracement level of the recent strong rebound from a multi-month low touched last Thursday. Hence, it will be prudent to wait for acceptance below the 145.40-145.35 region before positioning for any further losses. With oscillators on the daily chart still holding deep in the negative territory, spot prices might then accelerate the slide further towards the 145.00 psychological mark en route to the 38.2% Fibo. level, around the 144.70-144.65 region.

On the flip side, the 146.00 round figure now seems to act as an immediate barrier. Bulls, meanwhile, need to wait for a sustained strength beyond the 200-hour SMA resistance, currently pegged near mid-146.00s, before positioning for any further move up. The USD/JPY pair might then aim to surpass the 147.00 mark and test the next relevant hurdle near the 147.40-147.50 supply zone. The latter should act as a key pivotal point, which if cleared decisively will suggest that the recent sharp pullback from the 152.00 neighbourhood, or the YTD peak, has run its course and shift the bias in favour of bullish traders.