USD/JPY recovers above 109 as DXY gains traction

• Risk-aversion boosts demand for JPY on Wednesday.
• US Dollar Index pushes above 96.50.
• Coming up: Markit Manufacturing PMI from the U.S.

Dragged by plummeting U.S. Treasury bond yields, the USD/JPY pair touched its lowest level since May of 2018 at 108.70 before staging a modest recovery ahead of the beginning of the NA session. As of writing, the pair was trading at 109.12, still losing 0.53% on a daily basis.

A decisive correction seen in the US Dollar Index in the last couple of hours points to a broadly stronger greenback, which allowed the pair to reverse its course. Ahead of the IHS Markit’s December final Manufacturing PMI report, the DXY is adding more than 0.6% on the day at 96.70. Although there were no clear catalysts that could have impacted the greenback’s market valuation, major European currencies’, namely the GBP and the euro, dismal performance seems to be boosting the demand for the buck.

Meanwhile, major equity indexes in the U.S. point to a weak start to the day with the S&P 500 futures losing more than 1.5% in pre-market trading. A heavy sell-off in the U.S. stocks could offset the USD strength make it difficult for the pair to extend its recovery in the second half of the day.

Technical levels to consider