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- USD/JPY struggles to attract any meaningful buyers during the Asian session on Wednesday.
- Hormuz risks continue to fuel economic worries, undermining the JPY and supporting the pair.
- Iran diplomacy hopes and reduced Fed rate hike bets weigh on the USD, capping spot prices.
The USD/JPY pair is seen consolidating the previous day’s losses and oscillating in a narrow band below the 159.00 mark during the Asian session on Wednesday. Spot prices, however, remain confined in a broader trading range held over the past month or so, warranting some caution before placing aggressive directional bets amid mixed cues.
Despite the optimism over Iran diplomacy, the Japanese Yen (JPY) has been struggling to attract any meaningful buyers amid economic concerns stemming from the instability in the Strait of Hormuz. The US Navy blockade of Iranian ports took effect on Monday, threatening to further constrain already shuttered oil flows through the vital waterway. Given that Japan depends mostly on oil imports from the Middle East, the blockade fuels worries that the economy will come under substantial strain in the foreseeable future. This, in turn, undermines the JPY and acts as a tailwind for the USD/JPY pair.
Meanwhile, hopes that US-Iran peace talks would continue remain supportive of the risk-on impulse, which is evident from the upbeat mood across the global equity markets. Adding to this, the softer US Producer Price Index (PPI) released on Tuesday forced traders to further scale back bets for immediate interest rate hikes by the US Federal Reserve (Fed). This keeps the US Dollar (USD) depressed near its lowest level since early March, set the previous day. Furthermore, intervention fears might continue to offer some support to the JPY and contribute to capping the upside for the USD/JPY pair.
There isn’t any relevant market-moving economic data due for release from Japan or the US on Wednesday, leaving the currency pair at the mercy of the USD price dynamics. Nevertheless, geopolitical developments would continue to infuse volatility in the financial markets and continue to produce some trading opportunities around the USD/JPY pair. The fundamental backdrop, however, makes it prudent to wait for a sustained breakout through a short-term trading range before positioning for a firm near-term trajectory.
