USD/JPY struggles for direction, flat-lined around 103.75-80 region

• USD/JPY seesawed between tepid gains/minor losses through the early North American session.
• A modest USD uptick extended some support to the pair, weaker sentiment capped the upside.
• A sharp intraday slide in the US bond yields, COVID-19 jitters might hold bulls from placing bets.

The USD/JPY pair lacked any firm directional bias on Monday and remained confined in a range around the 103.75-80 region through the early North American session.

A combination of diverging forces failed to assist the pair to capitalize on the previous session’s positive move, instead led to range-bound price action on the first day of a new trading week. The early downtick to the 103.65 region found some support amid a modest pickup in the US dollar demand.

However, a turnaround in the global risk sentiment – as depicted by a fall in the equity markets – underpinned demand for the safe-haven Japanese yen and capped gains for the USD/JPY pair. The global risk sentiment took a hit following the disappointing release of the German IFO survey results.

The data added to market worries about the potential economic fallout from the continuous surge in new coronavirus cases, the discovery of new variants and a delay in COVID-19 vaccine supplies. In fact, President Joe Biden’s top COVID-19 medical adviser, Dr Anthony Fauci said this Monday that the South African variant poses more threat to vaccine efficacy. Fauci added that existing vaccines might not fight future variants and also raised concerns about delays to second COVID-19 vaccine doses.

Bearish traders further took cues from a steep decline in the US Treasury bond yields, which held the USD bulls from placing aggressive bets. This was also cited as another factor that might contribute towards keeping a lid on any meaningful upside for the USD/JPY pair amid absent relevant macro releases.

Hence, the key focus will remain on the latest FOMC monetary policy update on Wednesday. This will be followed by the Advance US Q4 GDP report on Thursday, which will influence the near-term USD price dynamics. This, in turn, should provide a fresh directional impetus to the USD/JPY pair.

In the meantime, developments surrounding the coronavirus saga will drive the broader market risk sentiment and allow traders to grab some short-term opportunities.

Technical levels to watch