USD/JPY consolidates in a range, below mid-105.00s

• A combination of diverging forces failed to provide any meaningful impetus to USD/JPY.
• A subdued USD demand kept a lid on the early intraday positive move to three-day tops.
• The risk-on mood, a strong pickup in the US bond yields might help limit any sharp slide.

The USD/JPY pair extended its sideways consolidative price action and remained confined in a range, below mid-105.00s through the early European session.

The prevalent upbeat market mood – as depicted by strong gains in the equity markets – undermined the safe-haven Japanese yen and assisted the USD/JPY pair to gain some traction on the first day of a new week. The uptick pushed the pair to three-day tops, albeit the upside remained limited amid a subdued US dollar demand.

The global risk sentiment remained well supported by reviving hopes for additional US fiscal stimulus measures and expectations of a COVID-19 vaccine by the end of this year. However, nervousness on the US political situation held the USD bulls from placing any aggressive bets and capped the upside for the USD/JPY pair.

Meanwhile, the risk-on flow led to a strong rally in the US Treasury bond yields. This, along with concerns that a steep rise in new coronavirus cases could trigger renewed lockdown measures and prove detrimental for the global economic growth continued lending some support to the greenback’s status as the reserve currency.

This makes it prudent to wait for some strong follow-through selling before positioning for any further near-term depreciating move for the USD/JPY pair. On the other hand, a sustained move beyond mid-105.00s will be seen as a fresh trigger for bullish traders and pave the way for a move towards the 106.00 round-figure mark.

There isn’t any major market-moving economic data due for release on Monday. Hence, the key focus will be on a scheduled speech by the Fed Chair Jerome Powell. Apart from this, the broader market risk sentiment will play a key role in influencing the USD/JPY pair and produce some meaningful trading opportunities.

Technical levels to watch