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  • USD/JPY struggled for a firm direction and remained confined in a range on Friday.
  • Sliding US bond yields kept the USD bulls on the defensive and capped the upside.
  • The risk-on mood, COVID-19 jitters undermined the JPY and helped limit any losses.

The USD/JPY pair bounced around 15-20 pips from daily lows, albeit lacked any follow-through buying and remained below the Asian session tops. The pair was last seen hovering around the 108.75 region, nearly unchanged for the day.

A combination of diverging forces failed to provide any meaningful impetus to the major and led to a subdued/range-bound price action through the first half of the trading action on Friday. Despite Wednesday’s hawkish FOMC minutes, the US dollar languished near multi-month lows amid expectations that the Fed will stick to its accommodative policy stance for a longer period.

This was evident from a softer tone surrounding the US Treasury bond yields, which turned out to be one of the key factors that failed to assist the USD/JPY pair to gain any traction. That said, the downside remains cushioned, at least for the time being, amid the prevalent risk-on mood across the global equity markets, which tends to dent demand for the safe-haven Japanese yen.

Apart from this, concerns that surging COVID-19 cases and the imposition of lockdown measures could hinder Japan’s fragile economic recovery further extended some support to the USD/JPY pair. On Friday, medical experts approved the government’s proposal to add the southern prefecture of Okinawa, taking the list to 10 prefectures that are subject to the strictest emergency measures.

Hence, it will be prudent to wait for some strong follow-through selling before positioning for any further depreciating move. Market participants now look forward to the release of flash US PMI prints for May. This, along with the US bond yields, will influence the USD. Traders will further take cues from the broader market risk sentiment for some short-term opportunities.

Technical levels to watch

 

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