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  • USD/JPY gained traction for the third straight day and recovered further from multi-month lows.
  • Sustained USD buying interest amid concerns about rising COVID-19 cases remained supportive.
  • The prevalent risk-on mood undermined the safe-haven JPY and provided an additional boost.

The prevalent USD buying interest pushed the USD/JPY pair to one-week tops, around the 105.20 region during the Asian session on Wednesday.

A combination of factors assisted the pair to gain traction for the third consecutive session and build on this week’s goodish recovery move from the 104.00 mark, or over six-month lows touched on Monday. Concerns about the second wave of coronavirus infections and fears of renewed lockdown measures to contain the outbreak continued benefitted the US dollar’s status as the global reserve currency.

The greenback was further supported by the overnight hawkish comments by Chicago Fed President Charles Evans, saying that further quantitative easing may not provide additional lift to the US economy. Evans further added that it is possible for the Fed to raise interest rates before inflation starts to average 2%, though acknowledged the risk of longer, slower economic recovery and recessionary dynamics if Congress fails to pass an additional fiscal stimulus package.

Apart from a broad-based USD strength, a positive tone around the equity markets undermined the Japanese yen’s safe-haven demand and provided an additional boost to the USD/JPY pair. The momentum now seems to have stalled near 200-hour SMA, warranting some caution for bullish traders and before positioning for any further near-term appreciating move.

Meanwhile, developments surrounding the coronavirus saga and the broader market risk sentiment will continue to play a key role in influencing the USD/JPY pair. Later during the early North American session, the release of the flash version of the US Manufacturing and Services PMI prints for September, along with the Fed Chair Jerome Powell’s second day of congressional testimony will also be looked upon for some short-term trading opportunities.

Technical levels to watch