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  • USD/JPY opened with a bearish gap amid rising US-Iran tensions.
  • US-China trade optimism prompted some intraday short-covering.
  • The upside remains limited amid absent relevant fundamental trigger.

The USD/JPY pair filled the weekly bearish gap and jumped to fresh session tops, beyond the 108.00 handle in the last hour, albeit lacked any strong follow-through.

The pair extended its recent sharp pullback from the 109.65-70 supply zone, or multi-month tops, and dropped to near three-month lows during the Asian session on Monday. Heightened geopolitical tensions continued benefitting the Japanese yen’s safe-haven status and led to a bearish gap opening on the first day of a new trading week.

Recovery lacks bullish conviction

The pair, however, showed some resilience at lower levels and witnessed a modest intraday short-covering move amid optimism over the phase one US-China trade deal. This coupled with oversold conditions on hourly charts further prompted traders to lighten their bearish bets and led to a modest intraday bounce of around 30 pips.

Despite the rebound, the upside remains limited, rather lacked bullish conviction amid fears of a further escalation of US-Iran tensions. Hence, it will be prudent to wait for some strong follow-through buying before positioning for any further recovery amid absent relevant market moving economic releases from the US.

Technical levels to watch