USD/JPY seesaws around 130.00 as Treasury yields refresh three-year high ahead of FOMC

• USD/JPY treads water after a positive start to the key week.
• US 10-year Treasury yields rally to the highest since December 2018.
• Hawkish hopes from Fed propel yields and USD, economic fears add strength to the greenback’s safe-haven demand.
• Off in Japan to restrict the latest moves, US Factory Orders will decorate calendar.

USD/JPY bulls take a breather around 130.00 during the initial hour of Tuesday’s Asian session, having partially reversed a pullback from a 20-year high during the week-start advances. The yen major’s latest gains could be linked to the multi-month high US Treasury yields before Wednesday’s Federal Open Market Committee (FOMC), as well as a steady rise in the US dollar’s demand due to the rush for risk-safety.

The benchmark US 10-year Treasury yields crossed the 3.0% mark for the first time since late 2018, before ending the North American session near 2.97%. The bond rout takes clues from the market’s firmer belief of a faster monetary policy normalization by the Fed to combat the rising inflation, despite the latest easing in US data on Monday.

That said, the US Federal Reserve (Fed) is ready to announce a 0.50% increase in the Fed rate and may also share views of balance-sheet normalization amid ballooning debt and inflation. As per the latest readings of the CME’s FedWatch Tool, there is a 99.3% probability of a 0.50% rate hike, matching the market consensus. Hence, an outcome is mostly priced in and may not impress the greenback until surprising markets with different moves.

Talking about data, the US ISM Manufacturing PMI for April eased to 55.4 versus 57.6 market forecast and 57.1 prior readings while S&P Manufacturing PMI also softened to 59.2 from 59.7 expected and prior.

It’s worth noting that the escalating fears of the EU’s oil embargo on Russian energy and stricter covid-led activity restrictions in Beijing also join the aforementioned catalysts to add to the US Dollar’s strength, which in turn propel USD/JPY prices of late.

Moving on, a Constitution Day Holiday in Japan will restrict the bond moves in Asia and hence the USD/JPY prices may also witness inaction. However, the sour sentiment and pre-Fed hopes can keep favor the buyers. During the US session, Factory Orders for March, expected 1.1% versus -0.5% prior, will be important to watch, in addition to the qualitative factors, for near-term directions.

Technical analysis

USD/JPY remains inside a five-week-old ascending trend channel formation, between 128.15 and 131.70 by the press time, which in turn keeps the pair buyers hopeful amid the firmer RSI (14).