- A modest USD rebound extended some support to USD/JPY on Thursday.
- Fading safe-haven demand undermined the JPY and remains supportive.
- COVID-19 jitters, dovish Fed expectations might cap any meaningful gains.
The USD/JPY pair extended its sideways consolidative price action through the early European session and remained confined in a narrow trading band just below the 104.00 mark.
The pair managed to find some support near the 103.65 region and for now, seems to have stalled its recent decline witnessed over the past one week or so. A modest uptick during the first half of the trading action on Thursday was sponsored by some US dollar short-covering move.
Apart from this, a positive tone in the US equity futures undermined the safe-haven Japanese yen and provided a minor lift to the USD/JPY pair. That said, dovish Fed expectations held bulls traders from placing any aggressive bets and kept a lid on any meaningful recovery for the pair.
Concerns about the economic fallout from the imposition of new restrictions in several US states overshadowed the latest optimism over a potential vaccine for the highly contagious coronavirus disease. This, in turn, fueled expectations of further monetary stimulus from the Fed.
This was evident from a fresh leg down in the US Treasury bond yields, which should cap the attempted USD rebound. Hence, a subsequent move beyond the 104.00 mark might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 104.30-35 region.
Market participants now look forward to the US economic docket, featuring the releases of Philly Fed Manufacturing Index and Initial Weekly Jobless Claims. Trades will further take cues from developments surrounding the coronavirus saga and the broader market risk sentiment.
Technical levels to watch
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