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  • A combination of factors prompted some fresh selling around USD/JPY on Tuesday.
  • The prevalent bearish sentiment around the USD was seen exerting some pressure.
  • A cautious mood benefitted the safe-haven JPY and contributed to the selling bias.

The USD selling bias remained unabated through the mid-European session and dragged the USD/JPY pair further below the 103.00 mark. The pair was last seen trading around the 102.85 region, down around 0.25% for the day.

The pair failed to capitalize on the previous day’s modest rebound from multi-month lows, instead met with some fresh supply on Tuesday and was being pressured by a combination of factors. The US dollar remained depressed near two-and-half-year lows amid the likelihood of more US financial aid package and expectations that the Fed will keep interest rates lower for a longer period.

Meanwhile, uncertainty about the US Senate runoffs in Georgia tempered the recent market enthusiasm. This, in turn, benefitted the safe-haven Japanese yen and exerted some additional downward pressure on the USD/JPY pair. The outcome of two Senate seats will have an impact on the incoming President Joe Biden’s ability to pursue his preferred economic policies, including boosting stimulus.

According to economists at TD Securities, the USD could see further downside momentum should the Democrats flip both Georgia seats. “Republicans need to win just one of the two GA contests on Tuesday to remain the majority party in the Senate, but polls have been moving in favor of the Democrats and betting odds have tightened. The Ossoff-Perdue race is expected to be the tighter of the two.”

In the meantime, traders are likely to take cues from the US economic docket – highlighting the release of ISM Manufacturing PMI. Apart from this, developments surrounding the coronavirus saga might continue to drive the broader market risk sentiment. This, in turn, might influence the safe-haven demand for the JPY and assist investors to grab some short-term trading opportunities.

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