USD/JPY retreats from 1-week tops, still comfortable above 105.00 mark

• USD/JPY witnessed a modest intraday pullback from mid-105.00s, or one-week tops.
• A softer risk tone extended some support to the safe-haven JPY and exerted pressure.
• The USD witness some profit-taking from two-month tops and contributed to the slide.

The USD/JPY pair edged lower during the early European session and refreshed daily lows, around the 105.20 region in the last hour.

The pair failed to capitalize on its early uptick, instead witnessed a modest pullback from the vicinity of mid-105.00s and eroded a part of the previous day’s strong positive move to one-week tops. The prevalent risk-off environment extended some support to the Japanese yen’s perceived safe-haven status, which, in turn, was seen as a key factor exerting some pressure on the USD/JPY pair.

Worries that the second wave of coronavirus infections threatened to derail the global economic recovery. Adding to this, concerns about the return of severe lockdown restrictions continued taking its toll on the global risk sentiment. The anti-risk flow was evident from a weaker trading sentiment around the equity markets and forced investors to take refuge in traditional safe-haven assets.

The global flight to safety was further reinforced by sliding US Treasury bond yields. This coupled with warnings by various Fed officials on Wednesday, stressing the need for more fiscal stimulus to sustain the recovery, prompted some US dollar profit-taking from two-month tops and contributed to the USD/JPY pair’s downtick of around 20 pips from the Asian session swing highs.

The pair, for now, seems to have snapped three consecutive days of the winning streak. Market participants now look forward to the US economic docket, featuring the releases of Initial Weekly Jobless Claims and New Home Sales data. This, along with a scheduled testimony by the Fed Chair Jerome Powell and Treasury Secretary Steven Mnuchin, will influence the USD price dynamics and produce some meaningful trading opportunities later during the North American session.

Technical levels to watch