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  • USD/JPY met with some fresh supply on Tuesday and reversed the overnight modest recovery gains.
  • COVID-19 jitters benefitted the safe-haven JPY, hops for more US stimulus weighed on the greenback.
  • Investors look forward to US economic releases for some impetus ahead of the FOMC policy meeting.

The USD/JPY pair edged lower through the mid-European session and refreshed daily lows, around the 103.90 region in the last hour.

A combination of factors failed to assist the pair to capitalize on the previous day’s goodish bounce from over one-month lows and an early uptick to the 104.15 region. The recent optimism about the rollout of vaccines for the highly contagious coronavirus disease was overshadowed by worries about the continuous surge in new cases and the imposition of new lockdown restrictions.

In the latest developments, tighter lockdown restrictions were imposed in London amid a sharp spike in new infections and the discovery of a new variant of the coronavirus. This, in turn, drove some haven flows towards the Japanese yen. This, along with the emergence of some fresh selling around the US dollar, was seen as one of the key factors exerting pressure on the USD/JPY pair.

The USD Index languished near two-and-half-year lows amid expectations for additional US fiscal stimulus measures. A bipartisan $908 billion COVID-19 package could reportedly be split into two in order to increase its chances of approval by both Democrats and Republicans. Apart from this, expectations for further easing by the Fed was also cited as weighing on the greenback.

Hence, the key focus will remain on a two-day FOMC monetary policy meeting, starting this Tuesday. In the meantime, developments surrounding the coronavirus saga will continue to drive the broader market risk sentiment. Traders might further take cues from Tuesday’s US economic docket – featuring the second-tier releases of the Empire State Manufacturing Index and Industrial Production figures.

Technical levels to watch