USD/JPY clings to modest gains above mid-105.00s, focus remains on NFP

• USD/JPY gains some positive traction on Friday and moves way from weekly lows.
• A goodish pickup in the USD demand seemed to be the only factor lending support.
• A combination of negative factors might cap the upside ahead of the US jobs report.

The USD/JPY pair traded with a mild positive bias through the early European session and was last seen hovering near the top end of its daily range, around the 105.65 region.

The pair gained some traction on the last day of the week and built on the previous day’s late rebound from weekly lows, around the 105.30 region. A goodish pickup in the US dollar demand was seen as one of the key factors lending some support to the USD/JPY pair. However, a combination of negative factors might hold investors from placing any aggressive bets and keep a lid on any further gains, at least for the time being.

The global risk sentiment took a hit on Friday after the US President Donald Trump signed a pair of executive orders that would ban any US transactions with the Chinese companies that own TikTok and WeChat. The anti-risk flow was evident from a weaker trading sentiment around the equity markets, which might force investors to take refuge in traditional safe-haven assets and underpin demand for the Japanese yen.

The global flight to safety was further reinforced by the ongoing downfall in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond dropped back closer to all-time closing lows. This coupled with concerns about the pace of the US economic recovery might hold the USD bulls from placing aggressive bets.

Apart from this, the political stalemate over the shape and size of the next US fiscal recovery package might further contribute towards capping any strong gains for the USD/JPY pair. The US Treasury Secretary Steven Mnuchin warned on Thursday that Republicans and Democrats are still very far apart on key issues.

Investors might also prefer to wait on the sidelines ahead of Friday’s release of the official US monthly jobs report, popularly known as NFP. This makes it prudent to wait for some strong follow-through buying before confirming that the USD/JPY pair might have bottomed out in the near-term and positioning for any further gains.

Technical levels to watch