USD/JPY recovers above 109 as 10-year US T-bond yield rebounds from daily lows

• Wall Street’s main indexes flirt with record highs on Tuesday.
• 10-year US Treasury bond yield pares large portion of early losses.
• US Dollar Index stays directionless near 98.30 for second straight day.

The USD/JPY pair retreated to 108.90 area during the European trading hours but staged a rebound in the second half of the day and was last seen trading at 109.12, adding 0.2% on a daily basis.

Markets continue to react to US-China trade developments

Falling US Treasury bond yields and the poor performance of major European equity indexes allowed the JPY to find demand as a safe-haven earlier in the day. However, some optimistic commentary from the US side on the trade dispute with China caused a slight shift in the market sentiment and caused the pair to reverse its direction.  

In an interview with Fox News on Tuesday, Senior White House adviser Kellyanne Conway said they were getting “really close” to reach an agreement with China on trade and US President Donald Trump said they were in the “final throes” on completing the phase one of the deal.

The 10-year US Treasury bond yield, which lost more than 1%, erased a large portion of its daily losses and was last down 0.6% on the day. Additionally, Wall Street’s main indexes are up between 0.1% and 0.25% and remain on track to close at fresh all-time highs.

On the other hand, despite a batch of mixed macroeconomic data releases from the US, the US Dollar Index continues to move sideways near the 98.30 mark, supporting the pair’s recovery.

“The data support our view that growth in the US will slow further in the next few months, as the weakness in the industrial sector and slower jobs growth passes through to domestic demand,” said ABN AMRO Senior Economic Bill Diviney on the US data. “We continue to look for growth of 1.3% in 2020, down sharply from our expectation of 2.2% in 2019, and well below the Bloomberg consensus of 1.8%.”

Technical levels to watch for