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  • USD/JPY continued gaining traction for the fifth consecutive session on Tuesday.
  • The upbeat US economic outlook, rising US bond yields underpinned the USD.
  • A positive risk tone weighed on the safe-haven JPY and remained supportive.

The USD/JPY pair surged past the key 110.00 psychological mark and shot to one-year tops heading into the European session.

A combination of factors assisted the pair to prolong its recent strong bullish momentum and scale higher for the fifth consecutive session on Tuesday. A generally positive mood around the equity markets undermined demand for the safe-haven Japanese yen. This, along with sustained US dollar buying and rising US bond yields, provided an additional boost to the USD/JPY pair.

Investors remained optimistic about the prospects for a relatively faster US economic recovery from the pandemic, which continued underpinning the USD. The expectations were further bolstered by US President Joe Biden’s ambitious pledge of administering 200 million vaccine shots in 100 days and hopes for an additional $3.0 trillion infrastructure spending plan from the US.

Meanwhile, the reflation trade pushed the yield on the benchmark 10-year US government bond above the 1.70% threshold or back closer to over one-year tops touched earlier this month. This was seen as another factor that benefitted the greenback and pushed the USD/JPY pair beyond the 110.00 mark for the first time since March 2020, setting the stage for additional near-term gains.

That said, RSI (14) on the daily chart is flashing overbought conditions and warrants some caution before positioning for any further appreciating move. Investors might also refrain from placing fresh bullish bets, rather prefer to move on the sidelines as the focus now shifts to Friday’s release of the closely-watched US monthly employment details, popularly known as the NFP report.

In the meantime, Tuesday’s release of the Conference Board Consumer Confidence Index, along with the US bond yields might influence the USD price dynamics. This, along with the broader market risk sentiment, will be looked upon for a fresh impetus and some short-term trading opportunities.

Technical levels to watch