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  • USD/JPY struggled to build on Friday’s positive move and lacked any firm directional bias.
  • The risk-off mood benefitted the safe-haven JPY and turned out to be a factor capping gains.
  • Sliding US bond yields undermined the USD and exerted some intraday downward pressure.
  • The downside remains cushioned as investors now await the BoJ policy decision on Tuesday.

The USD/JPY pair lacked any firm directional bias on Monday and seesawed between tepid gains/minor losses through the early European session. The pair was last seen hovering around the neutral territory, around the 107.35 region.

A combination of negative forces failed to assist the pair to capitalize on Friday’s goodish intraday bounce of around 100 pips from the vicinity of mid-106.00s, or one-month lows. The prevalent risk-off environment benefitted the safe-haven Japanese yen and was seen as one of the key factors capping any meaningful upside for the USD/JPY pair.

Fears about the second wave of the coronavirus outbreak and the possibility of renewed lockdowns to curb the spread dampened prospects for a sharp V-shaped economic recovery. This comes on the back of the Fed’s bleak outlook for the US economy, which coupled with disappointing economic data from China dented investors’ appetite for riskier assets.

The global flight to safe-haven was reinforced by a fresh leg down in the US Treasury bond yields. This, in turn, undermined the US dollar demand and exerted some intraday downward pressure on the USD/JPY pair. However, the downside remained limited as investors seemed reluctant to place any fresh bets ahead of the BoJ policy decision on Tuesday.

In the absence of any major market-moving economic releases on Monday, the pair seems more likely to continue with its subdued/range-bound trading action. Meanwhile, the USD/JPY pair’s inability to register any meaningful recovery suggests that the near-term bias still seems firmly tilted in favour of bearish traders.

Technical levels to watch

 

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