Japanese Yen remains on the front foot against USD, holds just below two-week high

• The Japanese Yen lacks firm intraday direction and is influenced by a combination of diverging forces.
• The BoJ’s hawkish tilt, along with geopolitical risks, seems to lend some support to the safe-haven JPY.
• The Fed’s less dovish outlook offsets the disappointing US ADP report and is seen underpinning the USD.

The Japanese Yen (JPY) attracts some buyers for the second straight day on Thursday and remains well within the striking distance of over a two-week high touched against its American counterpart the previous day. That said, a combination of diverging forces might hold back traders from placing aggressive directional bets, warranting some caution before positioning for a firm near-term direction. Against the backdrop of worries about escalating geopolitical tensions in the Middle East, the Federal Reserve's (Fed) less dovish outlook on interest rates might continue to weigh on investors' sentiment. This, along with expectations for an imminent shift in the Bank of Japan's (BoJ) policy stance, acts as a tailwind for the JPY.

Meanwhile, the recent fall in the US Treasury bond yields has resulted in a further narrowing of the US-Japan rate differential and should lend additional support to the JPY. The US Dollar (USD), on the other hand, stands tall near its highest level since December 13 and is underpinned by the fact that the Fed smashed expectations for an interest rate cut in March. This, in turn, could help limit the downside for the USD/JPY pair. That said, the disappointing release of the US ADP report on private-sector employment on Wednesday and declining US Treasury bond yields cap the Greenback. This makes it prudent to wait for strong follow-through buying before positioning for the resumption of the currency pair's uptrend.

Daily Digest Market Movers: Japanese Yen struggles to gain any meaningful traction amid mixed fundamental cues

• The Japanese Yen draws support from the deepening Middle East tensions and the Bank of Japan's hawkish tilt, saying that conditions for phasing out huge stimulus and pulling short-term rates out of negative territory were falling into place.
• The European Union hopes to launch a naval mission in the Red Sea within three weeks to help defend cargo ships against attacks by Houthi rebels, which are hampering trade and driving up prices, the bloc’s top diplomat said Wednesday.
• The BoJ’s Summary of Opinions report from the January 2024 meeting published on Wednesday suggested that the central bank must maintain monetary easing under YCC, though members discussed prospects for exiting negative rates.
• The Federal Reserve left its benchmark interest rate unchanged in a range of 5.25% to 5.50% and dropped the longstanding reference to possible further hikes in the borrowing cost, though gave no hint that a rate cut was imminent.
• In the post-meeting press conference, Fed Chair Jerome Powell acknowledged the US economic strength and declined to declare victory in the two-year fight against inflation, dealing a severe blow to expectations for a March rate cut.
• Traders are now pricing in a 38% probability that the Fed will cut interest rates in March, down from 59% before the FOMC announcement and nearly 90% a month ago, offsetting the disappointing release of the US labor market report.
• Data published by Automatic Data Processing (ADP) showed that private-sector employers added 107,000 jobs in January as compared to 145,000 anticipated and the previous month's downwardly revised reading of 158,000.
• The yield on the benchmark 10-year US government bond slides further below the 4.0% mark, which caps the upside for the US Dollar and does little to provide any meaningful impetus to the USD/JPY pair.
• Traders now look to the US economic docket, featuring the usual Weekly Initial Jobless Claims and the ISM Manufacturing PMI, for some impetus ahead of the US monthly jobs report, or the Nonfarm Payrolls on Friday.

Technical Analysis: USD/JPY might now confront stiff resistance near the 100-day SMA, around the 147.55 region

From a technical perspective, the USD/JPY pair has been showing some resilience below the 23.6% Fibonacci retracement level of the December-January rally. Moreover, oscillators on the daily chart – though have been losing traction – are still holding in the positive territory. This, in turn, warrants some caution for bearish traders. Hence, any intraday weakness might continue to find some support near the 146.00 mark or the overnight swing low. This is followed by the 38.2% Fibo. level, around the 145.60-145.55 region, which if broken decisively should pave the way for deeper losses.

On the flip side, momentum beyond the 147.00 mark is likely to confront some resistance near the 100-day Simple Moving Average (SMA), currently around the 147.55 zone. A sustained strength beyond has the potential to lift the USD/JPY pair back towards the 148.00 mark en route to the 148.35-148.40 supply zone. Bulls, however, might wait for some follow-through buying beyond the 148.80 area, or a nearly two-month high touched in January before positioning for the resumption of the recent uptrend witnessed over the past month or so.