USD/JPY seller’s return needs validation from US PMI, Fed

• USD/JPY bounces off intraday low during the first daily fall in three.
• 10-DMA restricts immediate declines amid sluggish yields.
• BOJ’s stealth intervention, mixed concerns over Fed triggered earlier pullback.
• US ISM, S&P Global Manufacturing PMIs will precede FOMC to direct traders, bulls are likely to keep the reins.

USD/JPY pares intraday losses, the first in three days, around 148.40-45 during early Tuesday morning in Europe.

The yen pair dropped notably during the initial Asian session amid headlines from Japan, as well as due to the US dollar’s retreat and sluggish Treasury bond yields. However, the cautious mood ahead of the key US PMI and Wednesday’s all-important Federal Open Market Committee (FOMC) challenges the bears of late.

“Japan's currency interventions have been stealth operations in order to maximize the effects of its forays into the market, Finance Minister Shunichi Suzuki said on Tuesday, after the government spent a record $43 billion supporting the yen last month,” reported Reuters. The news also mentioned that Japanese officials remain tight-lipped on exactly when they intervened in the market in October. Full details of their actions will not be available until quarterly intervention data is published. The July-September data is expected to be released early this month.

It’s worth noting that the recently softer US data pushed US dollar traders to weigh on Fed’s announcements, given the already priced-in 75 bps rate hike. Also keeping the quote’s upside intact could halt the US Treasury yields’ run-up and mixed comments from US President Joe Biden and Russian leader Vladimir Putin. That said, the US Chicago Purchasing Managers’ Index and Dallas Fed Manufacturing Business Index for October came in at 45.2 and -19.4 versus 47.0 and -15.0 expected respectively.

“US President Joe Biden on Monday called on oil and gas companies to use their record profits to lower costs for Americans and increase production, or pay a higher tax rate, as he battles high pump prices with elections coming in a week,” said Reuters. On the other hand, Russia’s Putin said he can set up a gas hub in Turkey ‘quite quickly’ and was sure gas contracts will be signed. The Russian leader also added that there will be many in Europe who want to do so.

Against this backdrop, the US 10-year Treasury yields remain sluggish near 4.05% but the equity futures print mild gains amid hopes of easing energy prices, as well as inflation.

Moving on, headlines surrounding the Bank of Japan (BOJ) and the US Federal Reserve’s (Fed) next moves will be important for the USD/JPY pair traders to watch for fresh directions. Also important will the October month’s ISM Manufacturing PMI and S&P Global Manufacturing PMI for the US. It should be noted, however, that the yen pair is likely to remain firmer amid the wide divergence between the monetary policies of the Fed and the BOJ.

Also read: Federal Reserve Preview: Dollar buying opportunity? Why Powell is unlikely to cement a pivot

Technical analysis

A clear bounce off the 10-DMA support surrounding 148.00 defends USD/JPY bulls.