USD/JPY clings to modest recovery gains, just above mid-105.00s

• USD/JPY finds some support ahead of the 105.00 mark and stages a modest bounce on Tuesday.
• A goodish pickup in the USD demand/US bond yields remained supportive of the positive move.
• Dovish Fed expectations, concerns over worsening US-China relations might cap any strong gains.

The USD/JPY pair held on to its modest recovery gains through the early European session and was last seen hovering near daily tops, just above mid-105.00s.

The pair managed to find some support ahead of the key 105.00 psychological mark and for now, seems to have stalled its recent bearish trend to 4-1/2-month lows. The uptick marked the first day of a positive move in the previous four sessions and was sponsored by a goodish US dollar rebound from near two-year lows.

The fact that the US policymakers have moved closer to agreeing on the next fiscal stimulus package aided the USD recovery through the first half of the trading action on Tuesday. Bullish traders further took cues from a strong pickup in the US Treasury bond yields, albeit dovish Fed expectations seemed to cap gains.

Investors remain worried that the continuous surge in coronavirus cases could undermine the economic recovery, which, in turn, fueled speculations of more stimulus by the Fed. This coupled with concerns over worsening US-China relations might underpin the safe-haven Japanese yen and hold investors from placing aggressive bullish bets.

Hence, it will be 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 meaningful recovery.

Market participants now look forward to the US economic docket – highlighting the release of the Conference Board’s Consumer Confidence Index and Richmond Manufacturing Index. The data might influence the USD price dynamics and produce some meaningful trading opportunities later during the early North American session.

Technical levels to watch