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  • USD/JPY stages a modest recovery from multi-month lows set earlier this Wednesday.
  • The underlying bullish tone undermined the safe-haven JPY and remained supportive.
  • The prevalent USD selling bias might cap gains as the focus shifts to FOMC minutes.

The USD/JPY pair edged higher through the first half of the European session and refreshed daily tops, around the 102.85-90 region in the last hour.

Having refreshed multi-month lows, around the 102.60 region, the pair staged a modest recovery on Wednesday and has now recovered a part of the previous day’s losses. The uptick could be solely attributed to some short-covering and is likely to remain limited amid the prevalent US dollar selling bias.

Increasing bets for a Democrat victory in a crucial US Senate runoff elections in the state of Georgia raised expectations for additional US fiscal stimulus package. A Democrat-led Senate is expected to have a big impact on the incoming US President Joe Biden’s ability to pursue his preferred economic policies.

Meanwhile, expectations of larger government borrowing continued pushed the benchmark 10-year US Treasury yield back above the 1.0% mark for the first time since March. This, along with hopes for a strong economic recovery in 2021 and the underlying bullish tone in the financial markets, provided a modest lift to the USD/JPY pair.

On the other hand, the greenback languished near two-and-half-year lows amid the likelihood of more US financial aid and speculations that the Fed will keep rates lower for a longer period. Hence, the key focus will remain on Wednesday’s release of the latest FOMC monetary policy meeting minutes, due later during the US session.

This makes it prudent to wait for some strong follow-through buying before confirming that the USD/JPY pair has bottomed out in the near-term and positioning for any further recovery. In the meantime, traders are likely to take cues from the US economic docket, highlighting the release of the ADP report on private-sector employment.

Technical levels to watch