USD/JPY corrects from multi-month tops, slides to daily lows around 108.65 region

• USD/JPY edged lower during the early European session amid some USD profit-taking.
• A modest pullback in the US bond yields was seen as a key factor weighing on the USD.
• The upbeat US economic outlook, the risk-on mood should help limit any sharp decline.

The USD/JPY pair witnessed some selling during the early European session and refreshed daily lows, around the $108.70-65 region in the last hour.

The pair prolonged its recent strong bullish trajectory and continued scaling higher through the first half of the trading action on Tuesday. The momentum pushed the USD/JPY pair further beyond the 109.00 mark, to the highest level since June 2020, though lost steam amid some US dollar profit-taking.

US Treasury Secretary Janet Yellen said on Monday that a massive US stimulus package would provide enough resources to fuel a very strong US economic recovery. Yellen further added that there are tools to deal with inflation and led to a modest pullback in the US bond yields, which undermined the USD.

Meanwhile, the passage of a much-awaited $1.9 trillion fiscal spending bill remained supportive of a relatively faster US economic recovery from the pandemic. This, in turn, should continue to underpin the greenback and help limit the downside for the USD/JPY pair, at least for the time being.

Apart from this, the underlying bullish sentiment in the financial markets could cap the upside for the safe-haven Japanese yen and further extend some support to the USD/JPY pair. This, in turn, warrants some caution for bearish traders and before positioning for any meaningful corrective fall.

There isn’t any major market-moving economic data due for release from the US on Tuesday. Hence, the US bond yields will play a key role in influencing the USD price dynamics. Traders might further take cues from the broader market risk sentiment to grab some opportunities around the USD/JPY pair.

Technical levels to watch