USD/JPY edges higher toward 106 on recovering market sentiment

• Focus remains on headlines surrounding US-China trade conflict.
• 10-year US Treasury bond yield rebounds from three-year lows.
• US Dollar Index climbs toward 98 ahead of durable goods orders data.

The USD/JPY pair started the new week with a bearish gap as investors continued to move towards safer assets over the week and touched its lowest level since November 2016 at 104.45. However, with the risk sentiment recovering slightly in the last few hours, the pair staged a decisive recovery and was last seen trading at 105.85, adding 0.45% on a daily basis.

Trade war headlines drive markets

US President Donald Trump over the weekend said that he was confident that they could reach a deal with China and that they had two phone calls but  China’s Foreign Ministry Spokesman Geng said that he was not aware of any phone calls and reiterated that they need to resolve the dispute through negotiations and dialogue.

Although these latest headlines don’t necessarily point out to any progress whatsoever, the lack of developments that could further escalate the tensions seems to be allowing the markets to correct last Friday’s sharp reaction. Reflecting the softer mood, the 10-year US Treasury bond yield, which fell to its lowest level since August 2016 earlier in the day, is now down only 0.45%. Meanwhile, the S&P 500 Futures is up 0.47% to suggest that Wall Street’s main indexes are likely to open in the positive territory.

Durable goods orders data and the Chicago Fed’s National Activity Index will be featured in the US economic docket later today but investors are unlikely to make large bets while waiting for fresh developments on the US-China trade dispute.

Key technical levels