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  • The JPY benefitted from not so optimistic trade-related headlines.
  • Weaker US bond yields undermined the USD and weighed further.
  • The downside remains limited amid the prevalent risk-on mood.

The USD/JPY pair remained on the defensive at the start of a new trading week, albeit has managed to hold its neck comfortably above near one-month lows set last Thursday.
 
After Friday’s good two-way price swings, the pair opened with a modest bearish gap on Monday in reaction to a Bloomberg report that Chinese officials are reluctant to agree to a broad trade deal pursued by the US President Donald Trump.

Risk-on mood helped limit the downside

Further, China wants the scope of this week’s trade talks and any deal with the United States to be narrow. The report underpinned the Japanese Yen’s relative safe-haven status and exerted some downward pressure on the major.
 
This coupled with a weaker tone around the US Treasury bond yields were seen weighing on the US Dollar and further collaborated to the pair’s weaker tone during thin early Monday trade, though risk-on mood helped limit the downside.
 
Apart from the trade-related headlines, firming market expectations that the Fed will cut interest rates again at its upcoming policy meeting on October 29-30 in order to support the economy might keep a lid on any meaningful positive move.
 
A string of soft US economic data last week raised doubts on the assumption that the US economy will be more resilient than other economies and forced investors to start pricing in further monetary easing by the Fed.
 
The view was reinforced by Friday’s mixed US monthly jobs report, showing that the economy created 136K new jobs in September and largely offset an unexpected fall in the unemployment rate to a near 50-year low.
 
Hence, Monday’s scheduled speech the Fed Chair Jerome Powell will be closely scrutinized for any clues about the US central bank’s near-term policy outlook, which might eventually provide some meaningful impetus to the major.

Technical levels to watch