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  • A combination of factors assisted USD/JPY to gain some positive traction on Monday.
  • The prevalent risk-on mood, Japanese GDP report undermined the safe-haven JPY.
  • Worsening US-China relations, subdued USD demand kept a lid on any further gains.

The USD/JPY pair edged higher during the Asian session on Monday, albeit lacked any strong follow-through and remained confined well within a four-day-old trading range.

A combination of supporting factors assisted the pair to gain some positive traction on the first day of a new trading week. The global risk sentiment got a strong boost in reaction to the Fed Chair Jerome Powell’s optimistic comments about the US economy over the weekend.

The risk-on mood weighed on the safe-haven Japanese yen, which was further pressured by data showing that the domestic economy sank into recession during the first quarter of 2020. In fact, Japan’s economic activity shrank 0.9% QoQ and 3.4% YoY in the January-March quarter.

However, worsening US-China relations kept a lid on any runaway rally for the USD/JPY pair. It is worth recalling that the US Commerce Department on Friday moved to block chip supplies to Huawei Technologies and the subsequent reports flagged a possible retaliation by China.

This comes on the back of growing fears about the second wave of coronavirus infections, which should continue to hold investors from placing aggressive bullish bets. This make it prudent to wait for some strong follow-through buying before positioning for any further appreciating move.

In the absence of any major market-moving economic releases from the US, the incoming trade-related headlines might influence the broader market risk sentiment and play a key role in producing some meaningful trading opportunities around the major.

Technical levels to watch