USD/JPY retreats to 106.00 area, looks to close in positive territory

• USD/JPY lost its momentum after climbing to 10-day highs.
• US ISM Manufacturing PMI came in better than expected in July.
• US Dollar Index clings to modest daily gains near 93.50.

The USD/JPY pair rose to its highest level since July 24th at 106.47 on Monday but lost its bullish momentum in the second half of the American session. As of writing, the pair was consolidating its daily gains near 106.00, looking to close the day around 0.15% higher.

The broad-based USD strength at the start of the week provided a boost to USD/JPY. Rising US Treasury bond yields helped the greenback continue to outperform its rivals and the US Dollar Index advanced to 94.00 before retreating to 93.50 area. At the moment, the 10-year US Treasury bond yield is gaining 5% on a daily basis.

Earlier in the day, the data published by the ISM showed that the economic activity in the US’ manufacturing sector expanded at a stronger pace than expected in July. The ISM Manufacturing PMI rose from 52.6 to 54.2 and surpassed experts’ forecast of 53.6.

During the Asian session on Tuesday, Tokyo Consumer Price Index (CPI) report will be featured in the Japanese economic docket. However, USD/JPY is unlikely to show a significant reaction to this data. Later in the day, the ISM-NY Business Conditions Index and the IBD/TIPP Economic Optimism Index from the US will be looked upon for fresh impetus.

USD/JPY technical outlook

Commenting on the USD/JPY pair’s near-term outlook, “USD had a wild day last Friday as it plunged to 104.17 before staging an amazing reversal that sent it surging to a high of 106.05,” said FX strategists at the UOB Group. “The rapid and sharp swings have resulted in an overall mixed outlook. That said, there is scope for the sharp bounce to extend higher but any advance is viewed as part of a broad 105.30/106.70 range.”

Key levels to watch for