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  • USD/JPY managed to rebound around 20-25 pips from lows, albeit lacked any follow-through.
  • US fiscal stimulus, dovish Fed expectations weighed on the USD and capped gains for the pair.
  • COVID-19 vaccine optimism undermined the JPY and helped limit the downside ahead of NFP.

The USD/JPY pair seesawed between tepid gains/minor losses through the Asian session on Friday and was last seen hovering in the neutral territory, around the 103.85 region.

The pair managed to find some support near the 103.65 region and edged higher during the early part of the trading action on the last day of the week. The attempted bounce, however, lacked any follow-through and remained capped below the 104.00 mark amid a softer tone surrounding the US dollar.

The greenback struggled to register any meaningful recovery and languished near a two-and-a-half-year low amid growing bets for more US fiscal stimulus to aid the US economy. It is worth reporting that a $908 billion COVID-19 aid package was gaining traction in the US Congress on Thursday.

Adding to this, investors remain convinced that the Fed will expand its bond-buying program in December amid worries about the economic fallout from the continuous surge in new coronavirus cases. This was also cited as a key factor weighing on the buck and capping the USD/JPY pair.

That said, the recent optimism about the rollout of a vaccine for the highly contagious coronavirus disease remained supportive of the upbeat market mood. The risk-on flow undermined demand for the safe-haven Japanese yen and might help limit losses for the USD/JPY pair, at least for now.

Investors also seemed reluctant to place aggressive bets, rather preferred to wait on the sidelines ahead of Friday’s release of the closely-watched US monthly employment details. The NFP report will influence the USD price dynamics and provide a fresh trading impetus to the USD/JPY pair.

Technical levels to watch