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  • Recessionary fears continue to benefit the JPY’s safe-haven status.
  • A modest pickup in the USD demand helped limit deeper losses.

The USD/JPY pair extended its sideways consolidative price action on Wednesday and remained confined in a narrow trading band above mid-105.00s.
 
A combination of diverging forces failed to provide any meaningful impetus to the pair and led to a subdued/range-bound price action through the early European session on Wednesday. The US Dollar remained supported by the fact that the US President Donald Trump softened his tone against China predicted that the two countries will be able to reach a trade deal.

US yield curve inversion likely to cap the upside

This coupled with a positive trading sentiment around global equity markets weighed on the Japanese Yen’s perceived safe-haven status and further collaborated towards lending some support to the major, albeit growing concerns over global economic growth largely negated the positive factors and kept a lid on any strong follow-through up-move, at least for now.
 
Meanwhile, the recent fall in the longer-term US Treasury bond yields deepened the inversion of the US yield curve to the lowest level since 2007 on Tuesday and pointed to the impending US recession. The phenomenon might continue to benefit the safe-haven Japanese Yen and hence, any attempted up-move runs the risk of fizzling out rather quickly.
 
In absence of any major market-moving economic releases on Wednesday, the broader market risk sentiment and the US bond yield dynamics might continue to act as key determinants of the pair’s momentum ahead of Thursday’s important release of a revised estimate of the US GDP growth figures for the second quarter of 2019.

Technical levels to watch