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  • A combination of factors assisted USD/JPY to stage a modest bounce from multi-week lows.
  • The risk-on mood undermined the safe-haven JPY and remained supportive of the move up.
  • An uptick in the US bond yields provided an additional lift; weaker USD capped the upside.

The USD/JPY pair refreshed daily tops, around the 108.45 region during the early European session and recovered a part of the previous day’s losses.

Having shown some resilience below the 108.00 mark, the pair staged a modest recovery from seven-week lows and was supported by a combination of factors. The underlying bullish sentiment in the financial markets undermined demand for the safe-haven Japanese yen. Bulls further took cues from an uptick in the US Treasury bond yields, albeit the prevalent US dollar selling bias might cap gains for the USD/JPY pair.

The USD remained depressed near the lowest level since early March amid speculations that the Fed will keep interest rates low for a longer period. Investors now seem convinced with the Fed’s view that any spike in inflation is likely to be transitory and have been scaling back expectations for an earlier lift-off. This, along with fears about another dangerous wave of coronavirus infections, might hold bulls from placing aggressive bets.

In the absence of any major market-moving economic releases from the US, it will be prudent to wait for some strong follow-through buying before confirming that the USD/JPY pair has bottomed out. That said, the bias remains tilted in favour of bearish traders and supports prospects for an extension of the recent pullback from one-year tops.

Hence, any subsequent positive move might still be seen as a selling opportunity and remain capped near the 109.00 mark. The mentioned handle represents a confluence support breakpoint, comprising of the 200-hour SMA on the 4-hour chart and the 23.6% Fibonacci level of the 102.59-110.97 strong move up, which should now act as a key pivotal point.

Technical levels to watch