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  • USD/JPY extended its sideways consolidative price action for the second straight session on Tuesday.
  • Weaker global risk sentiment underpinned the safe-haven JPY and capped the upside for the major.
  • A modest USD uptick helped limit the downside ahead of this week’s key event/data risk from the US.

The USD/JPY pair struggled for a firm directional bias and remained confined in a range, around the 103.75 region through the early European session

A combination of diverging forces failed to provide any meaningful impetus to the major, instead led to a subdued/range-bound price action for the second consecutive session on Tuesday. A modest pickup in the US dollar demand extended some support to the USD/JPY pair, albeit a weaker tone surrounding the equity markets underpinned the safe-haven Japanese yen and capped gains.

The German data released on Monday added to worries about the economic fallout from the current round of strict coronavirus restrictions and dampened the market mood. Adding to this, lingering concerns over potential roadblocks to US President Joe Biden’s $1.9 trillion stimulus plan and escalating US-China tensions in the South China Sea further weighed on investors’ sentiment.

The lower risk appetite was reinforced by the ongoing slide in the US Treasury bond yields to three-week lows, which further collaborated to keep a lid on any meaningful upside for the USD/JPY pair. That said, investors now seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the latest FOMC monetary policy decision on Wednesday.

This will be followed by the release of the Advance US Q4 GDP report on Thursday. Apart from this, investors will also keep a close eye on the timing and size of the US fiscal stimulus. This, along with developments surrounding the coronavirus saga, will influence the USD price dynamics and assist investors to determine the next leg of a directional move for the USD/JPY pair.

Technical levels to watch