USD/JPY climbs above 136.00 after soft US data, ahead of the FOMC

• USD/JPY rises 0.02% for the second straight day as the Asian session begins.
• Russia’s Gazprom reducing natural gas flows to Europe, alongside the FOMC meeting looming, shifted sentiment sour.
• USD/JPY Price Analysis: Neutral biased, but a break below 134.74 to tumble the pair lower; otherwise, buyers eyeing 137.00.

The USD/JPY trims some of last Friday’s losses and edges up 0.42% as the New York session winds down. At the time of writing, the USD/JPY is trading at 136.65, below the 20-day EMA, as the Asian session takes over amidst a negative market sentiment.

USD/JPY rose on bad US data and mood

Investors’ mood dampened on news that Russia’s Gazprom halted one engine at the Nord Stream 1 pipeline, declining gas flows to 20%. The USD/JPY might remain choppy trading ahead of the US Federal Reserve Open Market Committee monetary policy meeting, where Powell & co. are expected to hike 75 bps the Federal funds rate (FFR).

Money market futures STIRs have fully priced in a 0.75% increase. Regarding a whole 1% hike, odds are at a 10% chance. Nevertheless, traders would lean onto the US 10-year Treasury yield reaction due to its close correlation with the USD/JPY.

On Monday, US economic data led by the Chicago National Activity Index further reinforced a recessionary scenario, tumbling for a second straight month to -0.9. Additionally, the Dallas Fed Manufacturing Index for July plunged -22.6 from -17.7 in June.

On the Japanese side, the Bank of Japan (BoJ) welcomed two new members, Takata and Tamure. In his first speech as a BoJ member, Takata said that the bank can keep monetary policy easy but is facing new challenges such as dwindling bank margins and the impact on market functions. In the meantime, Tamura said that Japan might soon see a positive cycle with wages increasing alongside inflation. He added that if that occurred, we would begin discussing an exit to easy policies.

What to watch

On Tuesday, the Japanese calendar will reveal the Bank of Japan's last monetary policy minutes. On the US front, the docket will feature US Consumer Confidence and New Home Sales.

USD/JPY Price Analysis: Technical outlook

The USD/JPY daily chart depicts the pair is upward-to-neutral biased, despite sliding below the 20-day EMA at 136.85. To shift the bias to neutral, or neutral-to-bearish, USD/JPY sellers need to reclaim the July 1 low at 134.74. Once cleared, the major would drop towards the 50-day EMA at 133.83.