• USD/JPY edged lower on Monday as yen firmed on improving optimism surrounding a potential U.S.-Iran agreement.
• Trading conditions are expected to remain relatively thin due to the U.S. Memorial Day holiday and market holidays across parts of Europe, which could lead to reduced liquidity and potentially sharper price swings during the session.
• Yield differentials continue to play a major role in supporting USD/JPY. The spread between Japanese government bond yields and U.S. Treasury two-year yields remains relatively wide, favoring the dollar, although the gap in longer-dated 10-year yields has narrowed somewhat.
• Markets are currently pricing in at least one additional interest rate hike this year from the Federal Reserve, with some investors even considering the possibility of further tightening rather than rate cuts.
• Meanwhile, the Bank of Japan is also expected to continue gradually normalizing policy, with markets anticipating a potential 25 basis point rate hike at its June meeting..
• Immediate resistance is located at 159.20 (38.2%fib), any close above will push the pair towards 160.00 (Psychological level).
• Support is seen at 158.76 (May 25th low) and break below could take the pair towards 158.19(SMA 20).
Recommendation: Good to buy around 158.80, with stop loss of 158.20 and target price of 159.40
