- USD/JPY witnessed some follow-through selling for the second consecutive session on Thursday.
- Retreating US bond yields weighed on the USD and exerted some downward pressure on the pair.
- A softer tone around the equity markets benefitted the safe-haven JPY and contributed to the slide.
The USD/JPY pair maintained its offered tone through the mid-European session and was last seen hovering near two-day lows, around the 105.70-65 region.
The pair edged lower for the second consecutive session on Thursday and retreated further from five-month tops, around the 106.20-25 region touched in the previous day. The US dollar witnessed some selling and trimmed a part of this week’s strong gains on the back of Wednesday’s dovish sounding FOMC meeting minutes.
The Fed reiterated to maintain an ultra-accommodative monetary policy, which led to a modest pullback in the US Treasury bond yields and further weighed on the greenback. Apart from this, a softer tone surrounding the equity markets benefitted the safe-haven Japanese yen and contributed to the USD/JPY pair’s downtick.
That said, the downside is likely to remain limited amid the optimism over a strong global economic recovery. The impressive pace of COVID-19 vaccinations, the slowing pace of infections and the progress on the US President Joe Biden’s proposed $1.9 trillion stimulus package might continue to boost investors’ confidence.
From a technical perspective, the downtick might still be categorized as a corrective slide following the recent strong positive move of around 180 pips from the 104.40 region. Hence, it will be prudent to wait for some strong follow-through buying before confirming that the USD/JPY pair has already topped out in the near-term.
Market participants now look forward to the US economic docket, featuring the release of Philly Fed Manufacturing Index, the usual Initial Weekly Jobless Claims and housing market data. This, along with the US bond yields, might influence the USD price dynamics and produce some meaningful trading opportunities around the USD/JPY pair.
Technical levels to watch
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