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  • USD/JPY continued scaling higher through the mid-European session and refreshed multi-month tops.
  • The risk-on mood, an uptick in the US bond yields, pickup in the USD demand remained supportive.
  • Slightly overbought conditions warrant some consolidation before the next leg of a positive move.

The USD/JPY pair shot to fresh multi-month tops during the mid-European session, with bulls now looking to build on the momentum further beyond the 107.00 mark.

Following the previous day’s modest pullback of around 30 pips, the pair caught some fresh bids on Wednesday and was supported by a combination of factors. The optimism over a strong global economic recovery remained supportive of the underlying bullish tone in the financial markets. This was seen as a key factor that undermined the safe-haven Japanese yen and assisted the USD/JPY pair to regain traction.

Bulls traders further took cues from a sudden pickup in the US Treasury bond yields, which helped revive the US dollar and provided an additional boost to the USD/JPY pair. The US bond market has been reacting strongly to the reflation trade, which has been fueling expectations for a possible uptick in inflationary pressure and raised doubts that the Fed would retain ultra-low interest rates for a longer period.

Apart from this, investors remain optimistic about a relatively faster US economic recovery from the pandemic amid the progress on COVID-19 vaccinations and a massive US fiscal spending plan. In fact, the US Congress seems set to pass the US President Joe Biden’s $1.9 trillion relief package to support growth, which further underpinned the greenback and remained supportive of the bid tone surrounding the USD/JPY pair.

The pair has now rallied over 200 pips from levels beyond the key 105.00 psychological mark and inched closer to the top boundary of a two-month-old ascending channel. With technical indicators on the daily chart gradually moving into the overbought zone, bulls are likely to take a brief pause near the mentioned barrier.

Market participants now look forward to the US economic docket, highlighting the releases of the ADP report on private-sector employment and ISM Services PMI. Apart from this, the US bond yields might influence the USD. Traders will further take cues from the broader market risk sentiment to grab some short-term opportunities.

Technical levels to watch