USD/JPY recovers from daily swing lows, still in the red below 108.00 handle

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  • Escalating geopolitical tensions boosts JPY’s perceived safe-haven status.
  • A follow-through pickup in the US bond yields extended some support.
  • Focus remains on this week’s central bank meeting – FOMC and BoJ.

The USD/JPY pair struggled to build on its goodish intraday bounce of around 40-pips from the weekly bearish gap opening lows and remained in the negative territory, below the 108.00 handle.
 
The safe-haven Japanese Yen got a strong boost at the start of a new trading week in reaction to escalating geopolitical tensions in the Middle East following the weekend attacks on Saudi Arabian refining facilities at Abqaiq, which knocked out more than 5% of global oil supply.

Risk-off mood might continue to cap

Yemen’s Iran-aligned Houthi group claimed responsibility for the attack but the US pointed the finger directly at Iran. The news benefitted, rather drove some aggressive flows towards traditional safe-haven currencies – including the Japanese Yen – and led to over 60-pips bearish gap for the major.
 
The pair, however, managed to find decent support near mid-107.00s in the wake of a follow-through uptick in the US Treasury bond yields. In fact, the yield on the benchmark 10-year bond climbed to the highest since August 2 and remained well supported by renewed US-China trade optimism.
 
Meanwhile, the US Dollar failed to abstract any meaningful support from rising US bond yields and remained on the defensive, which eventually seemed to be the only factor failing to inspire the bulls or assisting the pair to build on its goodish intraday bounce from nearly one-week lows.
 
Moreover, investors’ reluctance to place any aggressive bets ahead of this week’s highly anticipated FOMC meeting on September 17-18, which coupled with the BoJ monetary policy update on Thursday might further help determine the pair’s next leg of a directional move.
 
In the meantime, the pair seems more likely to oscillate in a narrow trading band amid absent relevant market moving economic releases from the US, though any further deterioration in the global risk sentiment might continue to exert some downward pressure/cap any meaningful up-move.

Technical levels to watch

 

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