• USD/JPY bulls eye higher levels to come on Fed sentiment.
  • The Fed is turning more and more hawkish as inflation fears ramp up.

USD/JPY is holding in the 115 area around 115.35 and sat in a Thanksgiving range of 115.24/45 as it consolidates the recent Federal Reserve sentiment as the hawks circle over 2051 Constitution Ave. 

Some short-squeezing in JPY has seemed warranted by some support to US 10-year yields so far and since mid-November given how overstretched the yen’s net-short positioning was. However, the pair could be here to stay. Nevertheless, the US dollar slipped slightly on Thursday. Traders are away for the holidays, but the greenback remains in a positive territory around the highest levels seen since July 2020 against the euro and in the DXY index. The greenback has strengthened due to the markets anticipating that the US Federal Reserve will hike rates sooner than other major central banks.

On Wednesday, the minutes of the Fed’s Nov. 2-3 meeting were supporting the case for a higher US dollar but did little on the day to send it much higher. There could be a delayed reaction here, perhaps with investors taking profits on long positions overall ahead of the long weekend.

However, the minutes have indicated that board members had become more concerned about rising inflation. p The December meeting will be a significant meeting whereby the pace of tapering of their bond-buying programme could start as many members have already advocated. as such the markets are getting set for a sooner than first anticipated liftoff.

USD/JPY levels

The hawkish bias is expected to keep USD/JPY afloat. Analysts at Commerzbank expect more from the pair with the 115.60 61.8% Fibonacci retracement of the move down from 2015 being in focus. ”Above here is the 117.56 level, the 1998-2021 resistance line and 119.41, the downtrend from 1975. We have a near term uptrend at 113.92.”