USD/JPY struggles near multi-week lows, around 108.00 mark

• Fresh COVID-19 jitters benefitted the safe-haven JPY and dragged USD/JPY to multi-week lows.
• Reduced Fed rate hike bets kept the USD bulls on the defensive and did little to lend any support.
• A modest uptick in the US bond yields seemed to be the only factor that helped limit the downside.

The USD/JPY pair remained depressed through the first half of the trading action on Wednesday and was last seen hovering around the 108.00 mark, just a few pips above multi-week lows.

Renewed fears about another dangerous wave of coronavirus infections in some countries continued weighing on investors’ sentiment. This, in turn, benefitted the safe-haven Japanese yen and dragged the USD/JPY pair to the lowest level since early March during the Asian session.

On the other hand, the US dollar struggled to capitalize on the previous day’s goodish rebound from seven-week lows amid reduced bets for an earlier than anticipated Fed lift-off. This was seen as another factor that contributed to the mildly offered tone surrounding the USD/JPY pair.

Investors now seem convinced with the view that any spike in inflation is likely to be temporary and that the Fed will keep interest rates low for a longer period. That said, a modest uptick in the US Treasury bond yields helped limit the downside for the USD/JPY pair, at least for now.

From a technical perspective, the USD/JPY pair, so far, has managed to defend the 38.2% Fibonacci level of its rally from YTD lows. This makes it prudent to wait for some follow-through selling before positioning for an extension of the recent pullback from the 111.00 neighbourhood.

There isn’t any major market moving economic data due for release from the US on Wednesday, leaving the USD/JPY pair at the mercy of the broader market risk sentiment. Apart from this, the US bond yields and the USD price dynamics will also be looked upon for some trading opportunities.

Technical levels to watch