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  • USD/JPY regained positive traction for the second consecutive session on Thursday.
  • The upbeat market mood undermined the safe-haven JPY and remained supportive.
  • A subdued USD price action might cap gains and warrants caution for bullish traders.

The USD/JPY pair edged higher through the Asian session and was last seen hovering near the top end of its daily trading range, around the 103.25-30 region.

Following the previous day’s pullback of around 40 pips from near one-week tops, the pair regained positive traction for the second consecutive session on Thursday. The uptick was sponsored by the prevalent risk-on environment, which tends to undermine demand for the safe-haven Japanese yen.

The global risk sentiment remained well supported by hopes for a strong economic recovery in 2021. Adding to this, a Democratic victory in the crucial US Senate runoff elections in the state of Georgia raised prospects for a more expansive fiscal policy and further boosted investors’ confidence.

Meanwhile, expectations of larger government borrowing led to some follow-through uptick in the US Treasury yields and contributed to the bid tone surrounding the USD/JPY pair. However, a subdued US dollar demand did little to inspire bullish traders and might keep a lid on any meaningful upside.

A Democrat-controlled Senate is assumed to widen the US budget and trade deficit further. This, in turn, kept the USD bulls on the defensive near the lowest level in nearly three years. The greenback was further pressured by speculations that the Fed will keep rates lower for a longer period.

In fact, the minutes from the Fed’s meeting last month – released on Wednesday – revealed unanimous support to keep the bond-buying program unchanged and that some members area in favour of expanding stimulus. This warrants some caution before positioning for any further gains for the USD/JPY pair.

Market participants now look forward to the US economic docket – highlighting the release of the usual Initial Weekly Jobless Claims and ISM Services PMI. Apart from this, the broader market risk sentiment will influence the safe-haven JPY and produce some trading opportunities around the USD/JPY pair.

Technical levels to watch