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  • A combination of factors prompted some heavy selling around USD/JPY on the first day of the week.
  • A softer risk tone benefitted the safe-haven JPY; reduced Fed rate hike bets undermined the buck.
  • A modest bounce in the US bond yields helped limit losses amid oversold conditions on hourly charts.

The USD/JPY pair dropped to seven-week lows during the mid-European session, with bears now eyeing a break below the 108.00 round-figure mark.

The pair witnessed some heavy selling on the first day of a new trading week and extended its recent pullback from the vicinity of the 111.00 mark, or one-year tops touched in March. A slight deterioration in the global risk sentiment provided a modest lift to the safe-haven Japanese yen. This, along with the prevalent bearish pressure surrounding the US dollar, dragged the USD/JPY pair to the lowest level since March 5.

The USD tumbled to over one-month lows amid diminishing odds for an earlier than anticipated Fed lift-off. Despite the incoming positive US economic data, investors seem convinced that any spike in inflation is likely to be transitory and that the Fed will keep interest rates lower for a longer period. This, in turn, was seen as a key factor that continued weighing on the greenback and exerting downward pressure on the USD/JPY pair.

That said, a modest pickup in the US Treasury bond yields helped limit any further losses, rather assisted the USD/JPY pair to find some support near the 108.00 mark. Apart from this, oversold RSI (14) on hourly charts further held traders from placing fresh bearish bets. Hence, it will be prudent to wait for sustained weakness below the mentioned handle before positioning for any further weakness amid an empty US economic docket.

Technical levels to watch