USD/JPY holds steady near 105.00 mark, just below 2-1/2-month tops

• USD/JPY gained follow-through traction for the sixth consecutive session on Wednesday.
• The prevalent risk-on mood undermined the safe-haven JPY and remained supportive.
• Hopes for additional US stimulus, COVID-19 vaccine optimism boosted risk sentiment.

The USD/JPY pair traded with a mild positive bias through the Asian session and held steady around the key 105.00 psychological mark.

The pair added to its recent strong gains and edged higher for the sixth consecutive session on Wednesday amid the prevalent risk-on flow, which tends to undermine the safe-haven Japanese yen. The market sentiment remained buoyant amid renewed optimism over additional US fiscal stimulus and news about the development of another COVID-19 vaccine.

Democrats in the US Congress took the first steps toward advancing President Joe Biden’s proposed $1.9 trillion COVID-19 relief package without Republican support. Democrats opened debate on a fiscal 2021 budget resolution with coronavirus aid spending instructions, unlocking a legislative tool to pass stimulus spending amid Republican opposition.

Investors’ confidence was further boosted by reports that the Sputnik V coronavirus vaccine developed in Russia showed an effectiveness rate of 91.6% in the phase-3 trial. This, in turn, fueled hopes for a strong global economic recovery amid the recent declining trend in new coronavirus cases and remained supportive of the upbeat market mood.

Meanwhile, expectations of a larger government borrowing continued pushing the US Treasury bond yields higher. This was seen as another factor lending some support to the US dollar and driving the USD/JPY pair higher. That said, the uptick lacked any strong bullish conviction and the pair, so far, remained capped below two-and-half-month tops set on Tuesday.

This makes it prudent to wait for some follow-through buying before positioning for any further near-term appreciating move. Market participants now look forward to the release of the US ISM Services PMI for some impetus. Apart from this, the broader market risk sentiment might also contribute to produce some trading opportunities around the USD/JPY pair.

Technical levels to watch