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  • USD/JPY edged lower for the second consecutive session on the first day of the week.
  • The downtick was sponsored by the prevalent selling bias surrounding the greenback.
  • The upbeat market mood might undermine the safe-haven JPY and help limit losses.

The USD/JPY pair edged lower during the early European session and dropped to near one-week lows, around the 106.40 region in the last hour.

The pair witnessed some follow-through selling on the first day of the new week and extended the previous session’s rejection slide from the 107.00 round-figure mark. The prevalent selling bias around the US dollar helped offset Monday’s disappointing release of the Japanese GDP report and was seen as a key factor exerting pressure on the USD/JPY pair.

Government data released this Monday showed the world’s third-largest economy contracted by 27.8% annualized pace during the second quarter of 2020. This marked the biggest economic slump on record and was led by the coronavirus-induced lockdown, albeit failed to impress bullish traders or provided any meaningful lift to the USD/JPY pair.

On the other hand, the USD remained depressed amid the impasse over the next round of the US fiscal stimulus measures. In fact, the US Congress suspended talks for the COVID-19 stimulus package and left for a month-long recess on Thursday. This, in turn, fueled concerns about the US economic recovery from the damage caused by the coronavirus outbreak.

Apart from this, a weaker tone surrounding the US Treasury bond yields further weighed on the greenback and contributed to the USD/JPY pair’s slide through the first half of the trading action on Monday. However, the upbeat market mood might undermine the Japanese yen’s safe-haven demand and help limit any deeper losses for the major.

The global risk sentiment remained well supported by the optimism over a potential vaccine for the highly contagious coronavirus disease and got an additional boost from the postponement of the US-China trade deal review. The meeting was originally scheduled for Saturday and the delay leaves the phase one deal intact, at least for now.

Market participants now look forward to the US economic docket, highlighting the release of the Empire State Manufacturing Index. The data might influence the USD price dynamics and produce some short-term trading opportunities. The key focus, however, will remain on the release of the latest FOMC meeting minutes, scheduled on Wednesday.

Technical levels to watch