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  • USD/JPY continued gaining traction on Thursday and shot to the highest level since July 2020.
  • A pullback in the US bond yields was offset by sustained USD buying and remained support.
  • Investors look forward to Fed Chair Jerome Powell’s speech for some meaningful impetus.

The USD/JPY pair held on to its modest gains through the early European session and was last seen hovering near the highest level since July 2020, around the 107.15 region.

The pair prolonged its recent bullish momentum and continued gaining traction on Thursday. The uptick marked the seventh day of a positive move in the previous eight and remained well supported by the optimistic global economic outlook. The impressive pace of COVID-19 vaccinations and the progress on a massive US fiscal spending plan has been fueling hopes for a strong global economic recovery, which has been weighing on the safe-haven Japanese yen.

On the other hand, the US dollar benefitted from the recent rally in the US Treasury bond yields. The prospects for a relatively stronger US economic recovery and the passage of US President Joe Biden’s $1.9 relief package forced investors to price in a possible uptick in inflation. This, in turn, raised doubts that the Fed would retain ultra-low interest rates for a longer period and continued underpinning the US bond yields.

The selloff in the US Treasuries seemed to have eased on Thursday and might hold bullish traders from placing fresh bets amid slightly overbought RSI on the daily chart. The negative factor, however, was offset by some follow-through USD buying, which should help limit any meaningful downside. Investors might also prefer to wait on the sidelines ahead of the Fed Chair Jerome Powell’s scheduled speech later during the North American session.

Powell’s comments on the risk of a rapid rise in long-term borrowing costs will now play a key role in influencing the US bond yields and the USD price dynamics. This, along with the broader market risk sentiment, should allow traders to grab some short-term opportunities ahead of Friday’s release of the closely watched US monthly jobs report – popularly known as NFP.

Technical levels to watch