USDJPY is streamlining from a multi-week high due to modest USD weakness

USDJPY extends its recent gains to a multi-week high.

On Tuesday, the USDJPY pair reaches a nearly five-week high, but it struggles to capitalize on the move and oscillates between tepid gains and minor losses. Throughout the early European session. The pair is currently trading near 134.40-134.35, nearly unchanged for the day. Though the fundamental backdrop appears to be tilted in favor of bullish traders, supporting prospects for further near-term gains.

A slight decline in the US dollar turns out to be a significant factor acting as a headwind for the major.

The US Dollar (USD) faces selling pressure, halting a two-day-old recovery trend from a one-year low reached last week. Which is seen as a headwind for the USDJPY pair. However, new speculations that the Federal Reserve (Fed) will continue to raise interest rates should lend some support to the Greenback and help limit the downside for the currency.

Indeed, markets are pricing in a higher probability of another 25-basis point hike at the next FOMC meeting in May. And the bets have been boosted by a rise in short-term inflation expectations.

In addition, the New York Fed reported on Monday that its index of state manufacturing activity increased for the first time in five months. In fact, the Empire State Manufacturing Index increased to 10.8 from -24.6 in March, exceeding expectations.

Rising US bond yields favor USD bulls and help limit the pair’s downside.

This, in turn, supports the elevated US Treasury bond yields and benefits USD bulls. Indeed, the benchmark 10-year US government bond yield remains near a multi-week high, widening the US-Japan rate differential. This, combined with the Bank of Japan’s (BoJ) dovish stance, The USDJPY pair benefits from a more positive risk tone and a weakening of the safe-haven Japanese yen (JPY).

Furthermore  from a technical standpoint, the recent sustained move above the 50-day and 100-day Simple Moving Averages (SMAs) lends support to the near-term bullish outlook. As a result, the USDJPY pair’s path of least resistance is to the upside, and any corrective slide is likely to be bought into. Traders are now looking for some impetus later in the early North American session from US housing market data.

USDJPY Daily Trends