USD/JPY surrenders a major part of early gains to over 3-week tops

• Positive trade-related news weighed on the JPY’s safe-haven status and helped gain traction.
• Rallying US bond yields provided an additional boost and remained supportive of the up-move.
• A subdued USD demand kept a lid on any further up-move ahead of Thursday’s US macro data.

The USD/JPY pair retreated around 25-30 pips from over three-week tops and has now moved to the lower end of its daily trading range, around mid-106.00s.
 
The pair added to the previous session’s strong gains and continued gaining positive traction for the second consecutive session on Thursday amid fading safe-haven demand. Positive trade-related news, wherein China confirmed that it will resume trade talks with the US in October, helped boost investors’ appetite for perceived riskier assets.

Subdued USD demand failed to impress bulls

Improving global risk sentiment was evident from bullish trading sentiment around equity markets and further reinforced by a strong rally in the US Treasury bond yields, albeit a subdued US Dollar price action turned out to be the only factor that kept a lid on any strong follow-through up-move for the major, at least for the time being.
 
It will now be interesting to see if the pair is able to attract any fresh buying or continues with its struggle to make it through the 106.70-75 supply zone. Market participants now look forward to the US economic docket – highlighting the release of ADP report and ISM non-manufacturing PMI – for some meaningful trading opportunities.
 
The key focus, however, will remain on Friday’s keenly watched official US monthly jobs report – popularly known as NFP – which might influence the Fed’s near-term monetary policy outlook and eventually help determine the pair’s near-term trajectory ahead of the upcoming FOMC meeting later this month.

Technical levels to watch