- Resurgent USD demand assisted USD/JPY to regain positive traction on Tuesday.
- A turnaround in the risk sentiment benefitted the safe-haven JPY and capped gains.
- The downside seems limited as investors await this week’s important US macro data.
The USD/JPY pair quickly retreated over 30-35 pips heading into the North American session and was last seen trading with modest daily gains, just above the 109.00 mark.
The pair managed to regain positive traction on Tuesday and inched back closer to three-week tops touched in the previous session amid a broad-based US dollar strength. Investors remain optimistic about the prospects for a relatively faster US economic recovery from the pandemic. The narrative fueled speculations that the Fed may be forced to raised interest rates sooner rather than later, which, in turn, provided a strong lift to the greenback.
Bullish traders further took cues from a modest uptick in the US Treasury bond yields, which extended some additional support to the USD. However, a turnaround in the global risk sentiment – as depicted by a sharp pullback in the equity markets – drove some haven flows towards the Japanese yen. This was seen as a key factor that kept a lid on any further gains for the USD/JPY pair, rather prompted some selling at higher levels and led to a sudden fall in the last hour.
The downside, however, remains cushioned, at least for the time being, as investors might wait for the upcoming US macro releases for fresh directional impetus. The highlight from this week’s rather busy US economic docket will be the release of the closely-watched US monthly jobs report or NFP, scheduled for release on Friday. In the meantime, the broader market risk sentiment and the USD price dynamics will produce some short-term trading opportunities around the USD/JPY pair.
Technical levels to watch
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