USD/JPY trims a part of intraday gains to four-day high, holds above 132.00 mark

• USD/JPY gains traction for the third straight day amid a modest USD strength.
• The upbeat US NFP revives bets for more Fed rate hikes and underpins the buck.
• Sliding US bond yields cap gains for the USD and the pair amid geopolitical risks.

The USD/JPY pair scales higher for the third successive day on Monday and touched a four-day high, around the 132.80 region, albeit lacks follow-through. Spot prices trim a part of the intraday gains and trade around the 132.35 area during the early European session, up less than 0.15% for the day.

Reviving bets for further policy tightening by the Federal Reserve (Fed) push the US Dollar (USD) higher for the fourth straight day, which turns out to be a key factor acting as a tailwind for the USD/JPY pair. In fact, the markets are now pricing in a greater chance of a 25 bps lift-off at the next FOMC policy meeting in May and the bets were lifted by the mostly upbeat US employment details released on Friday. The intraday uptick, however, runs out to steam near the 132.80 region, warranting some caution for aggressive bullish traders.

Market participants still seem convinced that the Fed will cut rates in the second half of the year amid signs of slowing economic growth. This, along with a fresh leg down in the US Treasury bond yields, caps any meaningful upside for the buck. Apart from this, heightened US-China tensions over Taiwan drive some haven flows towards the Japanese Yen (JPY) and further contribute to keeping a lid on the USD/JPY pair. Traders also seem reluctant ahead of the new Bank of Japan (BoJ) Governor Kazuo Ueda's inauguration speech at 1030 GMT).

Moreover, most European markets are closed in observance of Easter Monday and relatively thin trading volumes might further hold back traders from placing fresh bets. The market focus, meanwhile, remains glued to the FOMC policy meeting minutes, due on Wednesday. This week's US economic docket also features the release of the latest consumer inflation figures and monthly retail sales data, which will play a key role in influencing the near-term USD price dynamics and determining the next leg of a directional move for the USD/JPY pair.

Technical levels to watch