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  • The upbeat market mood undermined the safe-haven JPY and assisted USD/JPY to gain traction.
  • A weaker tone around the USD held bulls from placing aggressive bets and capped the upside.
  • The USD remained depressed following the release of upbeat US ISM Non-Manufacturing PMI.

The USD/JPY pair maintained its bid tone, just above mid-105.00s through the early North American session, albeit has retreated few pips from daily tops.

The pair built on the previous session’s rebound from seven-day lows and gained some strong positive traction on the first day of a new trading week. A strong rebound in the equity markets undermined the safe-haven Japanese yen and was seen as one of the key factors driving the pair higher.

The political uncertainty stemming from the US President Donald Trump’s coronavirus infection news eased after the medical team stated that he could be discharged from the hospital on Monday. The positive update on Trump’s health revived investors’ appetite for perceived riskier assets.

The risk-on flow was further reinforced by a strong pickup in the US Treasury bond yields, which further inspired bullish traders and remained supportive of the USD/JPY pair’s positive move. However, the emergence of some fresh selling around the US dollar kept a lid on any further gains.

The recent optimism that the US Congress would pass the stimulus measures faded rather quickly after the House of Representatives speaker Nancy Pelosi highlighted areas of disagreement with Senate Republicans. This, in turn, held the USD/JPY pair bulls from placing any aggressive bets.

The USD bulls remained on the defensive and failed to gain any respite from Monday’s release of ISM Non-Manufacturing PMI, which unexpectedly jumped to 57.8 for September. The reading surpassed consensus estimates pointing to a reading of 56.3 and the 56.9 in August.

The pair’s inability to capitalize on the positive move makes it prudent to wait for some strong follow-through buying, beyond the 105.70-75 immediate hurdle, before positioning for any further near-term appreciating move. The USD/JPY pair might then aim to surpass the 106.00 mark and test the 106.25-30 supply zone.

Technical levels to watch