USD/JPY sticks to gains near 127.00 amid stronger USD, FOMC minutes awaited

• USD/JPY struggled to capitalize on its modest intraday gains amid the risk-off mood.
• Recession fears weighed on investors’ sentiment and benefitted the safe-haven JPY.
• Resurgent USD demand helped limit the downside ahead of the key FOMC minutes.

The USD/JPY pair surrendered its modest intraday gains and was last seen hovering near the lower end of the daily trading range, just below the 127.00 mark during the early North American session.

The market sentiment remains fragile amid growing concerns about softening global economic growth amid the prospects for a more aggressive move by major central banks to constrain inflation. Furthermore, the Russia-Ukraine war and the latest COVID-19 outbreak in China have been fueling recession fears, which continued weighing on investors' sentiment. This, in turn, extended some support to the safe-haven Japanese yen and acted as a headwind for the USD/JPY pair.

The global flight to safety, along with the idea that the Fed could pause the rate hike cycle later this year, dragged the US Treasury bond yields to the lowest level in over a month. This was seen as another factor that inspired bearish traders and kept a lid on the USD/JPY pair's early uptick. The downside, however, remains cushioned amid strong pickup in demand for the US dollar, which seemed rather unaffected by disappointing US Durable Goods Orders data.

The markets reacted little to the US macro release as the focus remains glued to the latest FOMC monetary policy meeting minutes, due for release later during the US session. Given that a 50 bps rate hike at the next two meetings is fully priced in, investors will look for clues about the possibility of a jumbo 75 bps in June. This will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the USD/JPY pair.

Technical levels to watch