USD/JPY trades with modest intraday losses below 150.00, downside potential seems limited

• USD/JPY meets with some supply on Thursday and snaps a three-day winning streak.
• Intervention fears and the Israel-Hamas war underpin the JPY and exert some pressure.
• Hawkish Fed expectations continue to benefit the USD and should limit deeper losses.

The USD/JPY pair attracts some sellers during the Asian session on Thursday and for now, seems to have snapped a three-day winning streak back closer to the 150.00 psychological mark. Spot prices currently trade around the 149.75 region, down just over 0.10% for the day, though the downside seems cushioned in the wake of the underlying bullish sentiment surrounding the US Dollar (USD).

Firming expectations that the Federal Reserve (Fed) will hold rates higher for longer in the wake of a still resilient US economy and to bring inflation back to its 2% target continue to push the US Treasury bond yields higher. In fact, the yield on the benchmark 10-year US government bond touches a fresh 16-year peak, which, in turn, is seen underpinning the Greenback and lending some support to the USD/JPY pair.

The upside, however, seems limited on the back of speculations that Japan will intervene in the FX market to combat a sustained depreciation in the Japanese Yen (JPY). Apart from this, the risk of an escalation in the war between Hamas and Israel could further benefit the safe-haven JPY and contribute to capping any meaningful appreciating move for the USD/JPY pair. Traders now look to Fed Chair Jerome Powell’s speech for a fresh impetus.

Market participants will look for cues about the Fed’s future rate-hike path, which will play a key role in influencing the USD price dynamics and determining the near-term trajectory for the major. Heading into the key event risks, traders might look to the US economic data – the usual Weekly Initial Jobless Claims, the Philly Fed Manufacturing Index and Existing Home Sales data to grab short-term opportunities around the USD/JPY pair.

Nevertheless, the aforementioned fundamental backdrop, along with the Bank of Japan’s dovish stance, suggests that the path of least resistance for spot prices remains to the upside. In fact, the Japanese central bank retains its view that inflation is transient and has no plans to phase out its massive monetary stimulus. Hence, any subsequent USD/JPY fall could be seen as a buying opportunity and is more likely to remain limited.

Technical levels to watch